Mark Latham Commodity Equity Intelligence Service

Wednesday 11th May 2016
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    Rousseff impeachment takes another strange twist

    Another day, another stunning reversal in Brazil's never ending Rousseff impeachment saga.

    Just hours after Brazilian stocks and currency tumbled when the head of Brazil's lower house Waldir Maranhao said he would annul the soon to be former president's impeachment process, the drive to oust President Dilma Rousseff is once again back on track after Maranhao reversed a decision that had earlier threatened to throw the entire impeachment process into chaos.

    As Bloomberg reports, lawmaker Waldir Maranhao released a statement in the dead of night revoking his own call to annul impeachment sessions in the lower house. Reuters adds that in his official statement to the Senate, Maranhao did not cite any reason for backtracking on his surprise announcement on Monday to annul last month's lower house vote to recommend the Senate try Rousseff for breaking budgetary laws although one can assume that it carried a substantial price tag.

    Rousseff’s allies spent most of Monday trying to capitalize on the lower house leader’s call to annul last month’s impeachment vote in the lower house. Attorney General Jose Eduardo Cardozo said the administration could file an appeal with the Supreme Court by arguing that Maranhao was right in trying to halt the process. Earlier, Maranhao argued that lower house deputies shouldn’t have announced their intention ahead of the April 17 vote to send the motion on to the Senate.
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    Mining bosses shift focus from debt and start to see new investment potential

    The bosses of big mining firms are starting to see potential for new investment as record low margins set the scene for higher commodity prices, they said on Tuesday, marking a change in tone from the focus on cost-cutting and asset sales.

    A prolonged commodities rout has forced even the biggest players to sell assets to deal with piles of debt.

    But BHP Billiton said it expected capital expenditure to rise after next year, while Glencore said structural deficits were returning, led by zinc, and copper also faced "supply challenges".

    Andrew Mackenzie, BHP's chief executive, said the firm was particularly positive on copper and oil but was not just waiting for prices to recover.

    In a copy of a speech he gave to a conference in Miami, he anticipated a $3.6 billion increase in BHP's productivity gains up to the end of 2017 with costs set to fall to half the level seen five years ago.

    He also said capital expenditure would rise after next year as the company made decisions on projects such as the Gulf of Mexico Mad Dog oilfield and Chilean copper mine Spence.

    Speaking at the same conference, Ivan Glasenberg, chief executive of Glencore, said "record low sector margins are setting the scene for the next price upswing" after a plunge in investment.

    Going forward he said growth needed to be redefined as cash flow per share, rather than production volume, and said Glencore was well placed as divestment progressed well and April disposals should be completed this quarter.

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    Posco moves into Lithium, and in scale.

    On February 15, 2016, Posco shocked the world by announcing that it would start building a new 2,500 ton lithium carbonate plant (to become fully operational in 2017) in Argentina which had nothing to do with Western Lithium's Cauchari-Olaroz Project. Despite Western Lithium's denial that Posco chose an alternate partner, it all indicates that that might be the case. We must remember that the HOA signed was a non-binding document. The agreement signed between Posco and Lithea Inc. to construct a new lithium carbonate plant at Pozuelos Salar, Salta Province, then highlights Posco'sdesires to get into lithium carbonate production as soon as possible. Following the previous Dundee Capital Markets link, it also demonstrates that Western Lithium and Lithea are "just two of Posco's many potential partners."

    Furthermore, according to a more recent Korean report, Posco is aiming at shortening the construction period for its lithium plant in Argentina "by moving up the completion date to September this year from the initial target of the end-year." And, in response to the recent surge in demand for the white metal, it plans to hit the unbelievable target of 40,000 tons of lithium carbonate per year in 2017. This last figure can only make sense if we agree that Posco's technology to extract and process lithium carbonate and obtain lithium cathodes for Li-ion batteries developed in cooperation with Research Institute of Industrial Science and Technology (RIST) is truly revolutionary. It then comes as no surprise that Posco's new Chairman served as president of RIST from 2009 to 2011 which implies that he's well aware of the new challenge.

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    Oil and Gas

    Tehran cuts crude price amid Riyadh’s surge push

    Tehran is reportedly cutting the price of Iranian crude in the Asian trade amid Saudi Arabia’s efforts to flood the already brimming world oil market.

    According to the Reuters report citing ‘an industry source with direct knowledge of the matter,’ Iran has set its June official selling prices (OSPs) for heavier crude grades it sells in Asia at the biggest discounts to Saudi and Iraqi oil since 2007-2008.

    Iran on Tuesday set the June OSP for Iranian heavy crude at $1.60 a barrel below the Oman/Dubai average, up $1 from the previous month, the source said.

    This still puts Iranian heavy at 30 cents a barrel below Saudi's Arab Medium grade, the biggest discount between the two crudes since 2007, the report added.

    This is while it said Saudi Arabia raised its June OSPs for all grades to several-month highs over claims of a rise in demand for the Saudi crude.

    “We’re seeing a global increase in demand,” said Amin Nasser, head of Saudi Arabia’s state-owned energy company Saudi Aramco in a Tuesday press conference in Dhahran. “We are meeting that call on us.”

    The Reuters report also noted that Tehran typically adjusts its crude price formulas to Asia at the beginning of each quarter following negotiations with its clients. However, this year it has changed at least some of its crude pricing formulas in March, April and June.

    The changes helped boost its exports to Asia by 50 percent in March from a year ago.

    Iranian light crude remained at 25 cents a barrel above Arab light in June, or $0.50 above the Oman/Dubai average.

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    Kuwait intends to increase oil output 44% in the next four years

    Speaking at the Platts Crude Oil Summit in London, Abdulaziz Al Attar, head of research at state-owned Kuwait Petroleum Corp., said the country aims at producing 4 million a barrels a day by 2020 and maintaining that level through 2030, reiterating its goal of ramping up production.

    According to MarketWatch, such an increase would mark a 44% jump on Kuwait's output of 2.77 million barrels a day in March, according to the latest monthly report from OPEC. It would also be the country's highest output level ever, according to Bloomberg data. "We also intend to provide fuel stock capabilities to counter for seasonality and domestic energy demand," Al Attar said at the conference.

    The comments come after a three-day strike in Kuwait sent its oil production tumbling to 1.5 million a day in April. However, Al Attar brushed off concerns that similar events would significantly impact production in the future. "I don't think there will be any future risks of strikes," he said. The oil representative said Kuwait plans to grow domestic refining capacity to 1.4 million barrels a day and boost international cooperation.

    So while the world awaits that elusive jump in demand which is the catalyst for all this upcoming excess production, in the meantime oil continues to pile up. And, as Reuters, writes, with plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to swamp demand despite the coming U.S. summer driving season.
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    Libyan Oil Fields to Grind to Halt Amid Port Blockage, NOC Says

    Fields responsible for the bulk of Libya’s oil exports will be forced to halt production within a month unless a blockade is lifted on the port of Marsa el-Hariga, according to the Tripoli-based National Oil Corp.

    “In less than four weeks we will have to shut production completely because the tanks at Hariga will be full,” Mohamed Harari, a spokesman for NOC, said in an e-mailed statement late on Monday. "The blockade will cause serious harm and bring no benefits.”

    Factions controlling the east of the North African nation imposed the port blockade on April 30 after their bid to sell a crude cargo independently of Tripoli was stymied as the United Nations blacklisted the shipment. With rising tensions between the UN-backed western-based government of national unity led by Fayez al Serraj and rivals in the east, oil production by Arabian Gulf Oil Co., which ships crude through Hariga, has dropped to 90,000 barrels a day from 240,000 barrels, the producer said last week.

    The eastern branch of NOC said on Monday that it had no plans to block shipments from the port.

    Oil exports from Hariga account for three-quarters of the country’s total, Harari said, adding that payments to the central bank will dry up and the dinar will be affected if the fields are shut down. Output from Libya has slumped about 80 percent since the 2011 ouster of dictator Muammar Al Qaddafi as different groups compete for control of oil facilities in the nation with Africa’s largest proven crude reserves.

    Oil flowing from some of the fields to Hariga is high in wax and will solidify in the pipelines if it doesn’t move, causing permanent production loss, Harari said. The tanker Seachance is moored off the coast, according to ship tracking data, after being prevented from exporting 1 million barrels of crude from the terminal.

    “Open the ports for the well being of our country," NOC Chairman Mustafa Sanalla said in the statement. "Unity is the only solution.”
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    Energy Deals Elusive Despite $110B in Assets on the Block

    Energy companies, including some of the world's biggest, could be forced to slash prices of more than $110 billion worth of assets they want to sell after dealmaking in oil and gas fields ground to a halt due to the volatile crude market.

    The values that buyers and sellers assign to assets, largely based on their view on the future oil price, drifted far apart in the past year, according to several industry bankers.

    Asking prices have been as much as 50 percent higher than what buyers are willing to pay in the era of cheap oil, although some bankers believe the gap is now narrowing again as crude prices rally, and activity is showing signs of picking up.

    Oil majors including Royal Dutch Shell, Chevron and BP are offering assets to balance their budgets and maintain lavish dividend policies. For smaller companies with heavy debt burdens such as Tullow Oil, Genel Energy or Enquest and U.S. shale producers, the need for cash can be even stronger.

    Around 146 assets worth more than $100 million each are on the block worldwide, according to data compiled by consultancy 1Derrick. It puts their total value at $113 billion, although any estimate remains notional until buyers and sellers come to terms.

    They include Chevron's Gulf of Mexico oil fields, North Sea assets owned by Italy's Eni, Shell and France's Total as well as a myriad assets in Africa and Asia.

    "Deals have been elusive because buyers are both few in number and highly cautious," said Bobby Tudor, Chief Executive Officer of U.S. investment bank Tudor, Pickering, Holt & Co.

    Business involving energy infrastructure remains buoyant. Even at low prices, pipelines are needed to move oil and gas while demand for storage is strong as sellers hold onto crude and products, hoping the market will pick up.

    In the United States, buyers are still unwilling to value assets at prices much above the oil price curve as measured by forward contracts, Tudor said. Known as the strip, this currently values WTI at around $53 a barrel in 2020.

    Tudor believes the market needs to rise only a little and stay there for mergers and acquisitions deals to pick up. "If we can get the prompt month for WTI stabilized in the high $40s and the 2020 price at $55 or higher, the M&A market will come alive," he said.

    U.S. shale production is now declining with lower investments, and dozens of huge oil and gas projects have been scrapped around the world. Nevertheless, closing asset deals remains elusive, according to one potential buyer.

    "Did the bump up from $27 a barrel to the $40s suddenly change the pace of industry dealmaking? I am not seeing that," said Arun Subbiah, Founding Partner at Petroleum Equity, an upstream oil and gas private equity firm focused on the North Sea and onshore Europe.

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    Qingdao port sees unprecedented congestion due to oil imports

    Crude oil tankers arriving at Qingdao are waiting for days to be unloaded in unprecedented congestion caused by importers rushing to stockpile oil as prices are on the rise.

    In the past few days, tankers have been in queues more than 10 deep off the port in east China, said Su Peng, an official with Qingdao Shihua Crude Oil Terminal. Though Qingdao is one of the world's busiest ports, Su has never seen anything like it.

    The oil pipeline linking Huangdao in Qingdao and the neighboring city of Weifang is working at its maximum capacity of 45,000 tonnes a day, more than twice the amount passing through it the same time last year.

    The monthly transport of oil away from Qingdao by road has been raised to one million tonnes from 600,000 tonnes the same period last year. And freight trains departing Qingdao are carrying 25 percent more oil than in 2015.

    Crude oil processing companies and traders began ordering oil in massive quantities in February, when prices started rising from 26 U.S. dollars per barrel. The price now stands at 45 U.S. dollars, as the arrival of cheaper orders from earlier this year challenges the port's capacity.

    Crude oil imports in ports across Shandong Province, home to Qingdao, rose 78.2 percent in the first quarter compared with the first three months of last year, according to customs statistics.

    "Big vessels are jamming big ports, and small vessels are jamming small ports," said Sun Chenglin, logistics manager of Shandong Chambroad Petrochemicals, a major privately owned oil refiner.

    The congestion is expected to be alleviated from June, authorities with Qingdao port told Xinhua, after analyzing its major customers involved in crude transport.

    Liu Xintian, secretary-general of the country's Commodity Development & Research Center, said the market had been optimistic about the prospects of rising oil prices, and many Chinese companies imported oil at relatively low prices.

    However, prices are not likely to exceed 50 dollars per barrel, said Liu. "Oil will lose its cost appeal compared with coal and natural gas if it hits 50 dollars," he said.
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    Sweden's Lundin Petroleum Q1 beats forecast, raises Sverdrup capacity estimate

    Sweden's Lundin Petroleum raised output estimates for the first phase of the giant Johan Sverdrup field on Wednesday as it beat first-quarter core earnings expectations helped by a strong production and a forex exchange gain.

    Lundin raised its daily output estimate for the first phase of the Sverdrup field in the North Sea, the largest oil find in Norway in 30 years.

    "We have recently completed a de-bottleneck study for Phase 1 of the project which concludes a potential of an increased processing capacity from the previously guided range of 315,000 to 380,000 bopd up to a revised 440,000 bopd," it said in a statement.

    The operator of Sverdrup is Statoil, while other partners include state-owned Petoro, Det norske and Denmark's Maersk Oil.

    First-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 45 percent to $125 million, well above a mean forecast for $66.9 million in a Reuters poll of analysts.

    Lundin swung to a net profit of $114 million from a loss of $231 million a year earlier.

    This "was mainly driven by the excellent production performance and a net foreign exchange gain (of $158.6 million) as a result of the weakening USD against the Norwegian Krone and the euro," it said.

    First-quarter production rose to 62,400 barrels of oil equivalent per day (boepd) from 25,800 boepd a year earlier buoyed by output from the Edvard Grieg field which came onstream at the end of 2015. (Reporting by Stine Jacobsen; editing by Gwladys Fouche and Jason Neely)

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    Big Oil walks away from $2.5billion in Arctic drilling rights

    After plunking down more than $2.5 billion for drilling rights in US Arctic waters, Royal Dutch Shell, ConocoPhillips and other companies have quietly relinquished claims they once hoped would net the next big oil discovery.

    The pullout comes as crude oil prices have plummeted to less than half their June 2014 levels, forcing oil companies to slash spending.

    For Shell and ConocoPhillips, the decision to abandon Arctic acreage was formalized just before a May 1 due date to pay the US government millions of dollars in rent to keep holdings in the Chukchi Sea north of Alaska.

    The US Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, but energy companies have struggled to tap resources buried below icy waters at the top of the globe.

    Shell last year ended a nearly $8billion, mishap-marred quest for Arctic crude after disappointing results from a test well in the Chukchi Sea.

    Shell decided the risk is not worth it for now, and other companies have likely come to the same conclusion, said Peter Kiernan, the lead energy analyst at The Economist Intelligence Unit.

    “Arctic exploration has been put back several years, given the low oil price environment, the significant cost involved in exploration and the environmental risks that it entails,” he said.

    All told, companies have relinquished 2.2 million acres of drilling rights in the Chukchi Sea – nearly 80 percent of the leases they bought from the US government in a 2008 auction. Oil companies spent more than $2.6 billion snapping up 2.8 million acres in the Chukchi Sea during that sale, on top of previous purchases in the Beaufort Sea.

    Shell relinquished 274 Chukchi leases and others in the neighboring Beaufort Sea. In doing so, the company forfeits what it paid the US government for the rights to drill in those tracts – and the millions of dollars it spent on annual rent since then.

    “These actions are consistent with our earlier decision not to explore offshore Alaska for the foreseeable future,” Shell spokesman Curtis Smith said by e-mail. The decision also reflects the high costs of operating off Alaska’s northern coast and evolving regulatory standards, Smith said.

    Other energy companies have followed Shell out of the Arctic, according to Interior Department records obtained by the conservation group Oceana under a Freedom of Information Act request and reviewed by Bloomberg News.

    ConocoPhillips formally relinquished its 61 Chukchi Sea leases on April 26, and spokeswoman Christina Kuhl said the company will end Interior Board of Land Appeals proceedings that aimed to extend their life.

    Statoil dumped 16 Chukchi Sea leases and its working interest stakes in 50 others in the US Arctic last November, conceding the portfolio was “no longer considered competitive.”

    Iona Energy, a Canadian oil and gas company that began insolvency proceedings last November, ceded its one lease in the Chukchi Sea on March 31. Italy’s Eni also gave up four leases in the Chukchi Sea on April 28.

    Shell indefinitely halted oil exploration in the US Arctic, but is seeking an extension of leases that begin to expire in 2017. That legal battle, playing out in the Interior Board of Land Appeals, will continue.

    Shell is holding on to one parcel in the Chukchi Sea: the tract it drilled last year. Smith said Shell is maintaining that lone lease – at a potential cost of $132,456 over the next four years – because there is value in the data the company gathered during its 2015 exploratory drilling.
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    Brazil to open subsalt to some non-Petrobras oil operators

    Brazil to open subsalt to some non-Petrobras oil operators 

    May 10 Brazil plans to publish regulations in coming days to allow companies other than state-run Petrobras to operate some oil production-sharing contracts in the Subsalt Polygon, a source participating in discussions of the rules told Reuters.

    The rules will only allow non-Petrobras companies to operate Subsalt Polygon blocks if the blocks are sold to unitize oil fields connected to existing areas already leased under concession contracts signed before new production-sharing rules took effect.

    Under the production-sharing rules, Petroleo Brasileiro SA, as Petrobras is formally known, is the only company allowed to operate oil and gas exploration and production blocks in the Subsalt Polygon, an offshore area near Rio de Janeiro where some of the world's largest recent discoveries have been made.
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    Australia's AWE rejects $311 mln bid from Lone Star fund

    Australian oil and gas company AWE Ltd said on Wednesday it had rejected a A$421 million ($311 million) takeover approach from U.S.-based private equity fund Lone Star, calling the offer too cheap.

    The bid adds to a spate of energy deals in Australia over the past year with acquirers seeking to swoop on beaten down assets, ranging from Beach Energy's takeover of Drillsearch Energy to Woodside Petroleum's scrapped $8 billion bid for Oil Search.

    Lone Star's Japan Acquisitions unit offered A$0.80 a share, a 30 percent premium to AWE's close on Tuesday.

    "The board concluded that it is opportunistic and does not reflect the fair underlying asset value of the company," AWE said in a statement to the Australian stock exchange.

    AWE's shares have slumped 58 percent over the past year, hammered like its peers by sliding oil and gas prices.

    The company, which recently appointed a new chief executive, David Biggs, has stakes in oil and gas projects in Australia, China, Indonesia, New Zealand, and the United States. As of March 31, it had net cash of A$52 million and no debt.

    Lone Star executives in the United States were not available to comment outside office hours.

    AWE's shares jumped 20 percent to A$0.74 in first trading after the announcement, but that was well below the offer price, reflecting uncertainty over whether a higher offer would emerge.
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    Argentina's YPF says first quarter net profit down 59.5 pct

    Argentina's state-controlled oil company YPF said on Tuesday that its first quarter net profit tumbled 59.5 percent versus a year earlier to 855 million pesos ($58.1 million).

    YPF, which was nationalized in 2012 after the Argentine government seized the stake held by Spanish oil major Repsol, posted a net profit of 2.11 billion pesos in the first quarter of 2015.
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    Bulk of Canada's Oil-Sands Plants Seen Starting in Days to Weeks

    Canadian oil-sands facilities representing more than 90 percent of production taken offline during a wildfire in northern Alberta have emerged unscathed and are expected to restart within days to a couple of weeks.

    Mines and drilling projects north of Fort McMurray are already bringing back some of the roughly 1 million barrels a day of supply that was curbed, Steve Williams, chief executive officer of the nation’s largest energy company Suncor Energy Inc., said Tuesday, speaking for the industry. Facilities south of the energy hub that represent much less of the lost supply and were more affected by the fire may take longer, he said.

    “It’s that quick -- some facilities are turning back up the volumes now,” Williams said at a media briefing in Edmonton, flanked by his peers at companies including Imperial Oil Ltd. and Canadian Natural Resources Ltd. Other projects to the south may take longer. “South, where there have been a few more direct impacts from the fire, we have to go in and evaluate and put the plans in place.”

    Companies took oil-sands production offline as a fire that’s ripping across northern Alberta forced the evacuation of more than 80,000 residents of Fort McMurray and destroyed about 10 percent of the community’s buildings. The industry’s safety precautions included the evacuation of workers from camps and the shutdown of pipelines and power supplies. The fire -- now 2,290 square kilometers (884 square miles), according to the latest provincial estimate -- is primarily moving east of the region toward Saskatchewan.

    Williams was among a dozen energy executives who met with Alberta Premier Rachel Notley on Tuesday to make plans to bring back the oil production that drives the provincial and national economy. Supplies taken offline by projects north of Fort McMurray represent an estimated 93 percent of volumes curbed during the fire, according to data compiled by Bloomberg from RBC Capital Markets research and company statements.

    “We will get back to normal as quickly as possible,” Notley said at the briefing. Movement of goods on the roads north of Fort McMurray restarted on Tuesday, she said. “While thousands of lives will never be the same, we can take small steps to getting back the rhythm in northeast Alberta.”
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    API Weekly Crude Oil Stock Builds 3.4mnl

    The latest American Petroleum Institute (API) inventory data recorded a build of 3.4mn barrels for the latest weekly data, compared with an expected build of around 0.3mn and the 1.3mn increase in stocksrecorded last week. The data pushed oil prices lower as markets reacted to the higher than expected inventories and, in contrast to last week, there was no major price support from the components.

    There was a build in Cushing stocks of 1.46mn barrels for the week, which was very close to the expected level after Monday’s Genscape data suggested a substantial build of 1.4mn barrels at the Cushing facility.

    There was an unexpected build in gasoline stocks of 271,000 barrels compared with an expected 0.8mn barrel draw with distillates recording a draw of 1.36mn barrels, which was broadly in line with expectations. Gasoline prices have remained stronger this week, primarily due to the impact of firm crude prices, although demand has also remained at elevated levels and the gasoline build is a surprise.
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    9 of 10 Biggest Marc/Utica Drillers Increase Production in 1Q16

    Although we often read of drillers in the northeast curtailing (shutting in) production to wait for higher natural gas prices, nine of the top ten publicly traded drillers in the Marcellus/Utica produced MORE natgas in the first quarter of 2016 than they did in the first quarter of 2015.

    Some of them, like Gulfport and Rice Energy, produced a LOT more (up 63% and 53% respectively).

    However, the Achilles heel for some drillers in our region is lack of pipeline capacity to get their gas out of the immediate region. The winners in the Marcellus/Utica are those drillers who have locked in pipeline capacity to move their gas to other regions–the northeast, south, Midwest and Gulf Coast.

    The losers are those who haven’t–and (potentially) those who were relying on pipeline projects that are either dead or delayed–including the Constitution and Northeast Energy Direct…

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    Noble Announces Agreement With Freeport-McMoRan; To Receive $540 Mln Payment

    Noble Corporation plc announced an agreement with its client, Freeport-McMoRan Oil & Gas LLC or FMOG, and FMOG's parent company, Freeport-McMoRan Inc. (Freeport), in connection with the drilling contracts for the drillships Noble Sam Croft and Noble Tom Madden, which were scheduled to terminate in July and November 2017, respectively.

    As per the agreement, the contracts will be terminated, with operations ceasing as soon as practicable, and Freeport will make a payment to Noble of $540 million. In addition, Noble can receive additional contingent payments from Freeport of $25 million and $50 million, respectively, depending upon the average price of oil over a 12 month period. Noble also expects to realize over $100 million in direct cost savings as a result of the contract terminations through crew reductions and stacking procedures.

    Freeport recently announced a restructuring of its oil and gas business, which is operated through FMOG. As disclosed in Freeport's public filings, FMOG has substantial debt and has been negatively impacted by the crash in oil prices.

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    Idemitsu, AltaGas suspend LNG project in Canada

    Japanese oil refiner Idemitsu Kosan Co said on Tuesday its joint venture with Canada's AltaGas would suspend a liquefied natural gas (LNG) project in Canada for the foreseeable future due to low energy prices.

    The two firms had conducted a feasibility study to export about 2 million tonnes per year of LNG to Asia from Canada's west coast as early as 2017.

    If the current LNG prices continue into the future, the venture would not be able to make a commitment on development, Toshiaki Sagishima, executive officer and general manager of Idemitsu Kosan's treasury department, told reporters during a briefing on the company's full-year earnings.

    But Idemitsu left open a possibility of continuing with the project when energy prices recovered.

    A consortium of companies including AltaGas and Idemitsu in February had also halted further development of the separate Douglas Channel LNG project on British Columbia's Pacific coast in Canada citing unfavorable market conditions.

    Idemitsu said it would lower its strategic investments during the business year that started on April 1 by about a third from a year earlier to 61 billion yen ($560 million) amid lower oil prices.
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    Path for US shale oil supply finds disagreement at Platts summit

    Roughly 4,200 miles from the heart of the Bakken Shale, the future of US shale oil became the focus of the Platts Global Crude Oil Summit in London Tuesday.

    There was sharp disagreement between analysts over whether US shale production had peaked, where the supply bottom may be, how quickly production might ramp up and even if American producers have been resilient in the face of low prices.

    While analysts said US shale has played a major role in the current global supply glut, it is unclear where US production may be headed going forward.

    Christof Ruhl, global head of research with the Abu Dhabi Investment Authority, told the summit the path of US oil supply is particularly unknown since the shale renaissance is so new.

    "Nobody knows, because we have literally never been here," said Ruhl.

    US crude production, which reached a recent peak of 9.7 million b/d in April 2015, is expected to average 8.6 million b/d this year and fall to 8.19 million b/d in 2017, the US Energy Information Administration said Tuesday.

    Paul Hornsnell, global head of commodities with Standard Chartered, said that projected, dramatic decrease in US supply shows that producers have hardly been resilient.

    "There's the narrative of the little [US] oil man standing up to the force of OPEC producers," Hornsell said. "But I don't think it holds up."

    But EIA may be overstating the decline in US production, according to Per Magnus Nysveen, head of analysis with Rystad Energy.

    Nysveen expects production to fall just 500,000 b/d from 2015 levels, due to improved rig efficiency and improved completion intensities. In addition, lower service costs and high grading have helped push the average US shale breakeven price from $80/b in 2012 to about $40/b in 2016.

    Nysveen said these improvements will likely level off and breakeven prices will climb back above $60/b as the market rebalances, where onshore may become competitive with US offshore production.

    How quickly supply can ramp up is unknown, but Ruhl said it would likely be quicker than many expect, "measured in months, not years."

    In addition, the potential rebound could vary by shale play.

    "Not all shale is created equally," said Christopher Wheaton, a director with Allianz Global Investors. "Some bits in the Bakken will never come back because they will be displaced by bits of the Permian."

    Many analysts said they expect the Bakken to face the largest hurdles in supply recovery, mainly due to infrastructure and geographic constraints.

    Nysveen said Bakken production fell by about 5,000 b/d in March from February, to about 1.113 million b/d. North Dakota officials are expected to release official statistics for March later this week.

    While the supply level is down from a peak of 1.23 million b/d in December 2014, North Dakota is expected to maintain supply flows of more than 1 million b/d until late this year due to efficiency improvements and targeted drilling.

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    Magnum Hunter Emerges from Bankruptcy with CEO Gary Evans Gone

    Magnum Hunter Resources Corporation, a driller focused almost entirely on the Marcellus/Utica, announced yesterday the company has emerged from bankruptcy–less than five months after filing.

    We suppose we should have seen this coming, but we were nonetheless surprised to read that MHR CEO Gary Evans is gone from the company.

    Currently two of Evans’ lieutenants will serve as co-CEOs while the new board of directors looks for a permanent replacement for Evans. Interestingly (to us), Evans’ name isn’t even mentioned in the press release–as if he never existed. That’s cold.

    MHR achieved their restructuring by converting what was $1 billion worth of debt into shares of stock, thereby screwing the old shareholders in favour of debt holders.
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    Alternative Energy

    Enbridge turns to renewable energy with French offshore wind acquisition

    Canadian oil and gas infrastructure giant Enbridge has agreed to buy a 50% interest in French offshore wind development company Éolien Maritime France, for C$282-million. NYSE- and TSX-listed Enbridge would co-own the company with EDF Energies Nouvelles (EDF EN), a subsidiary of Électricité de France (EDF), dedicated to renewable energy. 

    Closing of the acquisition was expected to occur on or about May 19. Enbridge advised that it and its new partners would develop three large-scale offshore wind farms off the coast of France that would produce a combined 1 428 MW of electricity. 

    Development of the three projects was already underway; however construction was still subject to final investment decisions and and regulatory approvals. "This is a unique and strategic opportunity for Enbridge to further grow our investment in renewable power and build on our existing presence in European offshore wind generation. 

    This investment in EMF advances our priority to build new business platforms that will extend and diversify growth," Enbridge president and CEO Al Monaco commented on Tuesday. The projects comprised the 498-MW Eoliennes Offshore des Hautes Falaises offshore wind farm, located off the coast of Fecamp; the 450-MW Eoliennes Offshore du Calvados project, located off the coast of Courseulles-sur-Mer; and the 480-MW Parc du Banc de Guerande project, located off the coast of Saint-Nazaire. 

    Enbridge, which already owned interests in 24 renewable energy facilities, either operating, secured or under construction, with a net generating operating capacity of nearly 2 000 MW, advised that each of the three wind projects had been awarded a 20-year power purchase agreement (PPA), under which EDF would pay an indexed fixed price for 100% of the power generated by each facility and through which EMF would also be significantly insulated from variances in wind capacity. 

    The three projects were in an advanced-stage of development with a permitting process close to completion, and significant technical and environmental studies already performed. Front-end engineering and design had been completed, construction contracts tendered and bids received. 

    Subject to Enbridge taking positive construction decisions on each project individually, the company would potentially invest up to C$4.5-billion in total for all three projects. Should the projects be built, construction would start gradually from 2017 and continue the next five years through 2022. Enbridge was the co-owner with EDF Energies Nouvelles' Group in four operating onshore wind projects in North America.
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    Vivint Solar to take part in SunEdison's bankruptcy case

    Solar panel installer Vivint Solar Inc said it would participate in SunEdison Inc's bankruptcy case to maximize its recovery from claims against SunEdison, which terminated its agreement to buy Vivint in March.

    Vivint Solar has filed a lawsuit in Delaware against SunEdison alleging that the solar company willfully breached its obligations under their merger agreement and is seeking damages.

    SunEdison's bankruptcy filing on April 21 has created a temporary stay on the prosecution of Vivint's lawsuit, the company said in a regulatory filing on Tuesday. (

    SunEdison, once the fastest-growing U.S. renewable energy company, filed for Chapter 11 bankruptcy protection after a short-lived but aggressive spate of debt-fueled acquisitions proved unsustainable.

    Investors began to lose confidence in SunEdison's expansion, when the company announced a $2.2 billion deal to acquire Vivint in July.

    The Vivint deal also led to a lawsuit by billionaire David Tepper's Appaloosa Management, which sued to block SunEdison's unit, TerraForm Power Inc, from buying some Vivint assets.
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    Engie buys 80 percent stake in battery storage company Green Charge

    French energy company Engie (ENGIE.PA) said on Tuesday it had bought an 80 percent stake in California-based battery power storage company Green Charge Networks.

    The company did not disclose the value or terms of the deal.

    "With Green Charge, Engie immediately gains a strong position in the growing battery storage market in the U.S. and further develops its offering of load management solutions," said Isabelle Kocher, Engie's chief executive officer.
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    Precious Metals

    Kinross Gold revenue misses

    Kinross Gold revenue misses 

    Kinross Gold Corp reported lower-than-expected quarterly revenue as the world's fifth biggest gold miner struggled with lower realized gold prices.

    Average realized gold price in the first quarter fell 3.2 percent to $1,179 per ounce.

    Kinross produced 687,463 equivalent ounces of gold during the quarter at its 10 mines in North and South America, Africa and Russia at an all-in sustaining cost of $963 per ounce.

    This was up from the 629,360 ounces it produced in the same period last year when the costs were $964 an ounce as production in the latest quarter was boosted by the acquisitions of Round Mountain and Bald Mountain mines in Nevada.

    Kinross maintained its 2016 production outlook, but raised its capital expenditure forecast by $160 million to $755 million to include spending on the Tasiast Phase One expansion.

    The company said in March it plans to invest $300 million to expand its Tasiast gold mine in Mauritania, West Africa, that will nearly double the mine's production and slash costs.

    The Toronto-based miner's net loss attributable to shareholders rose to $13.9 million in the first quarter ended March 31 from $6.7 million.

    On a per-share basis, its loss was little changed at 1 cent per share.

    Excluding items, the company broke even, while analysts' were expecting a loss of 1 cent a share, according to Thomson Reuters I/B/E/S.

    Revenue rose marginally to $782.6 million, but fell short of the $799 million that analysts had estimated.
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    Base Metals

    Rusal warns on China aluminium restarts as smelters plan fund to ease closures

    Russian aluminium giant Rusal warned against Chinese smelters restarting plants to keep from undermining prices that have retreated from 2016 highs as Chinese producers consider launching a fund to deal with the layoffs from closures.

    Global aluminium prices that rebounded to nine-month highs last month have enticed some Chinese smelters that closed in the past year amid overcapacity in the sector to resume production. But, while analysts say the restarts have been slow, producers fear they could weigh on prices again. China is the world's top consumer and maker of aluminium.

    Chinese producers should continue to keep their discipline toward production to "ensure gradual improvement in prices and profitability," Rusal's Deputy Chief Executive Oleg Mukhamedshin told an industry conference on Tuesday.

    There had been instances in the past when Chinese smelters restarted output as prices bounced to make immediate profits, but it's turned out that is not helpful to prices, said Mukhamedshin.

    Aluminium on the London Metal Exchange was trading at $1,566.50 a tonne on Tuesday, down from this year's peak of $1,686 reached on April 29.

    China's aluminium producers pledged to shut 4.6 million tonnes per year of capacity, or about 10 percent of smelting, amid plunging prices for the metal. Aluminium prices on the Shanghai Futures Exchange fell for six straight years before staging a pick-up this year.

    Chinese producers are looking at establishing a fund to help companies that have shut and to cope with the big swings in futures prices, said Wen Xianjun, Vice Chairman of China Nonferrous Metals Industry Association, at the conference.

    "The recent volatility in futures is not favourable for industry players. And we are considering to set up a fund to battle big futures market swings and for smelters that have closed and have to deal with layoffs," said Wen.

    The Association will lead the coordination among the smelters who they hope will provide the capital for the fund, said Wen.

    Wen also said while restarts and investment in new capacities will be limited, he sees demand growth outpacing supply going forward.

    Aluminium consumption in China is set to grow by 7 to 10 percent a year over the next five years and hit 44 million tonnes by 2020, Aluminium Corp of China Ltd (Chalco) President Ao Hong said.

    In February, six large Chinese aluminium producers said they were considering forming a joint venture company to handle primary aluminium stockpiling to support prices.

    The stockpiling plan was put on ice in April, an industry body official said, after prices pushed higher.
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    Indonesia's Inalum plans to double aluminium output to 500,000 T/yr by 2020

    Indonesia's state-owned aluminium producer PT Indonesia Asahan Aluminium (Inalum) plans to increase its output to 500,000 tonnes a year by 2020 from its current production level of 260,000 tonnes, said Dante Sinaga, who heads the firm's coal power station development project.

    Inalum also plans to increase its output to 1 million tonnes per year by 2025 as demand for the metal is projected to more than double from current levels in nine years, he added.
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    Steel, Iron Ore and Coal

    Daqin April coal transport down 18.9pct on year

    Daqin line, China’s leading coal-dedicated rail line, transported 24.85 million tonnes of coal in April this year, sliding 13.98 % on month but down 18.9% on year – the 20th consecutive year-on-year drop, said a statement released by Daqin Railway Co., Ltd on May 10.

    In April, Daqin’s daily coal transport averaged 0.83 million tonnes, 10.8 lower than March’s 0.93 million tonnes.

    Daqin rail line realized coal transport of 108.13 million tonnes over January-April this year, falling 20.86% year on year.

    Daqin rail line started routine spring maintenance on April 6, and it lasted 3 hours each morning for 25 days. This reduced a total 5 million tonnes of coal transport during the whole period, based on a daily drop of 0.2 million tonnes averagely.

    The maintenance did not cause the expected tight transport, mainly attributed to weak demand from downstream sector, and coal stocks at ports at Bohai Rim climbed during the period.

    By April 30, the combined coal stocks at Qinhuangdao, Jingtang and Caofeidian ports stood at 7.44 million tonnes, increasing 0.49 million tonnes from the level before the maintenance.
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    India's JSW Steel bids for Tata UK assets

    India's JSW Steel Ltd has bid for the British operations of Tata Steel Ltd , two sources with direct knowledge of the matter confirmed, worrying bankers about its high debt levels and pulling down JSW shares on Tuesday.

    JSW Steel, controlled by acquisitive billionaire Sajjan Jindal, wants to become the world's third-largest steel company and the bid for the Tata assets is in-line with that goal, said a source close to the company.

    Financial Times first reported JSW's bid, after Tata said on Monday that seven expressions of interest for its British assets had been taken to the next stage of the sale process it began last month. Tata did not name the bidders, but metals group Liberty House and a buyout team called Excalibur confirmed submitting expressions of interest.

    Mumbai-based JSW Steel unsuccessfully bid in 2014 to buy some assets from Italy's second-largest steelmaker, Lucchini, to enter the European market. In 2010, it bought out Indian company Ispat Steel (JSWI.NS), more than a decade after JSW emerged from near-bankruptcy.

    JSW Group, with interests in steel, power, cement and ports, had a gross debt of around 400 billion rupees ($6 billion) as of April, making it one of India's most indebted conglomerates.

    Rao told Reuters last month that although the group was growth-hungry, it would not let its financial stability suffer.

    Infrastructure bankers in Mumbai say, however, that they are uncomfortable with the JSW Group's debt, and they think the company is only testing the waters with the Tata bid.

    One potential deal-killer is the big pension liabilities of the Port Talbot steel mill in Wales that JSW Steel might have to shoulder, said the bankers who did not want to be named.

    The bankers also said that a bargain deal might help JSW Steel turn around Tata's money-losing UK business given their record of making steel efficiently and profitably in India without having any raw material security.

    JSW Steel's shares, which have risen a quarter so far this year, fell more than 3 percent on Tuesday to their lowest in a month. The wider Mumbai market .BSESN was up slightly.
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