Mark Latham Commodity Equity Intelligence Service

Friday 16th December 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China Devalues Yuan To Weakest Fix Since May 2008


    Following last night's bond bloodbath, The Fed fallout continues in China as The PBOC has devalued the official Yuan fix the most since Brexit to its weakest level since May 2008, breaking above 6.95/USD. Since the "one-off" devaluation in Aug 2015, the Chinese currency has now weakened almost 14% against the dollar.

    While the broad Renminbi basket has been "stable" against China's global trading partners for 3 months...

    It appears the devaluation pressure has been focused back against the US Dollar...

    And bear in mind that the "stability" we described above came at the grand cost of a stunning quarter of a trillion in reserves 'defending' the outflow pressure in 2016...

    For now the China bond market has stabilized a little (by which we mean it is not collapsing).

    At some point this butterfly's wings of turmoil will ripple across the world's liquidity markets and punch all those with a plan in US banking stocks in the face... the question is, when?

    http://www.zerohedge.com/news/2016-12-15/china-devalues-yuan-weakest-fix-may-2008
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    'Crazy bad' air pollution warning for Beijing


    Officials issue a red alert, halting construction, closing schools, restricting traffic and advising people to stay indoors.

    The hazardous conditions will last for five days from late Friday until 21 December, Beijing's environmental protection bureau warned on its social media account.

    The red alert announcement, which cited an accumulation of air pollution in Beijing and the surrounding areas, means schools will be closed and construction halted across the city.

    There will also be traffic restrictions, while citizens will be advised to stay inside.

    The colour-graded warning was introduced last year as part of a government initiative to be seen to be taking action on the country's environmental degradation.

    Beijing declared its first-ever red alert last December, bringing parts of the capital to a virtual standstill and forcing soldiers on duty in Tiananmen Square to wear smog masks.

    The threshold for declaring the highest level of alert has since been raised, and is only issued when the Air Quality Index (AQI) is forecast to exceed 500 for a day, 300 for two consecutive days, or 200 for four days.

    According to the World Health Organisation, the maximum safe level for exposure over a 24-hour period is 25.

    AQI levels topped 400 for two days earlier this month and an orange alert, the second highest level, was declared in November.  

    The AQI measures the concentration of tiny particles, known as PM 2.5, per cubic metre.

    The particles are particularly dangerous as they are small enough to get into the lungs and in some cases, directly into the bloodstream.

    A study published in 2015 found China's air pollution was linked to 1.6 million deaths a year, or 4,000 people a day.

    Beijing's air quality ranks among the worst in the world, with much of the blame attributed to industrial pollution and the burning of coal.  

    Air pollution tends to be more severe in the winter months, when coal-fired central heating systems are in use.

    China's government has promised to tackle its environmental problems, and has declared a "war on pollution".

    http://news.sky.com/story/crazy-bad-air-pollution-warning-for-beijing-10696803

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    China environment watchdogs to sever local government ties by year-end


    China's environment impact assessment (EIA) agencies will sever all connections with local governments by year-end to avoid conflicts of interest and help bolster the environment ministry's battle against rampant air, water and soil pollution.

    Citing the Ministry of Environmental Protection, the official Xinhua news agency said late on Thursday that 337 EIA agencies had already been de-coupled from local government or been disbanded. The remaining 13 will be detached this month.

    Earlier this week, China punished nearly 700 officials for inadequately protecting the environment in the latest round of rolling inspections. The previous round led to more than 3,000 officials being disciplined and 198 million yuan ($29 million) in fines being handed out for environmental violations.

    China's environment ministry was given authority earlier this year to investigate regions and enterprises without prior warning, and was empowered to summon any local government or company official to account for their actions.

    China has been trying to strengthen its environmental powers as part of a "war on pollution" launched in 2014 to reverse the damage done by decades of untrammelled growth.

    Xinhua said formerly government-affiliated EIA agencies had been ordered to terminate all connections with local government in 2015 to avoid corruption and conflict of interest. It added China has a total of 984 EIA agencies and 19,700 EIA engineers.

    http://www.reuters.com/article/us-china-environment-idUSKBN14401T
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    Oro Blanco indirect stake sale in Chile's SQM fails, shares plummet


    Dec 15 Chilean holding company Oro Blanco said on Thursday it had decided not to go ahead with the sale of an indirect stake in lithium and fertilizer firm SQM after no suitable offers were received.

    The terms and conditions of the offers received "did not contribute to the interests of the company or its shareholders, while one of the conditions would have been impossible to comply with, so the board unanimously decided today to not continue with the process," Oro Blanco said in a statement.

    http://www.reuters.com/article/sqm-ma-idUSC0N17002M

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    Brazil prosecutors hit ex-president Lula with more corruption charges


    Prosecutors on Thursday charged former Brazilian President Luiz Inacio Lula da Silva, his wife and a former finance minister with more corruption charges in the investigation of graft at state-run oil company Petrobras.

    It is up to federal judge Sergio Moro to decide if the new charges will result in another trial for Lula, who is already accused in Moro's court in southern Brazil with separate corruption charges. A ruling on those charges is not expected before late January or early February.

    Lula, an extremely popular two-term president who left office in January 2011, faces another trial on graft charges in a Brasilia court, but a start date has not been set.

    Lula's lawyers have repeatedly said that he is innocent of all accusations. In an emailed statement Thursday night, lawyer Cristiano Martins called the latest charges "a work of fiction."

    In bringing the new charges, prosecutors said in a statement that Lula oversaw a scheme in which Latin America's biggest construction firm, Odebrecht, paid 75 million reais ($22.18 million) in bribes to win eight Petrobras contracts.

    Prosecutors said Lula orchestrated the political appointment of Petrobras executives who would carry out the kickback scheme, with the money being funneled back into the campaign coffers of Lula's Workers Party and its allies, including Brazil's current ruling party, the Democratic Movement Party.

    Lula's wife, Marisa, was also charged in the case with money laundering, while Lula's former finance minister, Antonio Palocci, was charged with corruption and money laundering. Both already face separate charges and trials in the Petrobras case.

    Prosecutors said part of the illicit money made its way to Lula and his wife and that they benefited by surreptitiously using Odebrecht money to purchase and renovate real estate.

    The so-called Car Wash investigation is the biggest graft probe yet carried out in Brazil.

    So far, 200 people have been charged and 81 have been convicted . The charges involve at least 6.4 billion reais in bribes.

    Marcelo Odebrecht, the former chief executive of his family's construction firm, who is serving over 19 years in prison after being found guilty on other Car Wash charges, was also hit with more corruption charges on Thursday.

    But he has turned state's witness, along with nearly 80 other executives from the firm, and their statements are expected to implicate more than 200 politicians. Odebrecht is expected to remain imprisoned until the end of 2017 and remain on probation for several years in exchange for his testimony.

    http://www.reuters.com/article/us-brazil-corruption-lula-idUSKBN14421S

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    Oil and Gas

    What OPEC Cut? Iraq Is Boosting Its January Oil Exports By 7%


    In an "unexpected" twist, the WSJ reports that instead of cutting its crude production by 4% as it "promised" it would do in the Vienna November 30 meeting, Iraq instead plans to increase crude-oil exports in January, according to government records, immediately raising questions about its commitment to the OPEC’s landmark production agreement. The WSJ reportsthat Iraq’s national oil company, the State Organization for Marketing of Oil, or SOMO, had plans as of December 8, nine days after agreeing to cut production, to instead increase deliveries of its Basra oil grades by about 7% to 3.53 million barrels a day compared with October levels, according to a detailed oil-shipment program viewed by The Wall Street Journal. Those oil shipments represent about 85% of Iraq’s exports.

    The list of planned tanker loadings has been circulated among potential buyers so they can gauge its availability.

    When asked by the WSJ to explain this curious discrepancy, SOMO chief Falah al-Amri declined to comment about the company’s January export levels. Iraq’s oil minister, Jabbar Ali al-Luaibi, has said he would instruct SOMO to act on the OPEC output-cut agreement.

    http://www.zerohedge.com/news/2016-12-15/what-opec-cut-iraq-boosting-its-january-oil-exports-7
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    Pipeline from two Libyan oil fields 'reopens' but output hampered


    A group of oil guards in Libya said on Thursday they had reopened a long blockaded pipeline leading from the major oil fields of Sharara and El Feel, but an oil worker said a separate group had prevented a production restart at El Feel.

    The apparent agreement by a faction of the Petroleum Facilities Guard (PFG) in Rayana to open the pipeline after shutting it for more than two years has raised hopes of a major output boost from Sharara and El Feel, which together can produce more than 400,000 barrels per day (bpd).

    But the strength and scope of deals to resume production from the fields is not clear, and officials and analysts say any increase to output is likely to be gradual and fragile because of technical problems and Libya's ongoing political turmoil.

    The National Oil Corporation (NOC) has not confirmed any resumption of production at the fields.

    Libya is one of two members of the Organization of the Petroleum Exporting Countries (OPEC) that is not bound by the bloc's pledge to cut oil production by about 1.2 billion bpd during the first half of 2017.

    Its oil production has doubled to about 600,000 bpd since September, when the eastern-based Libyan National Army (LNA) took control of several blockaded ports and allowed the NOC to reopen them. But it remains far below the 1.6 million bpd Libya produced before its 2011 uprising.

    While a jump in Libyan output is seen as one of the risks to the OPEC deal, continued political rivalries and conflict are likely to complicate efforts to bring output back towards past levels.

    The NOC has said it hopes to raise production to 900,000 bpd in the near future, and to 1.1 million bpd next year.

    It has been involved in negotiations with tribal leaders and armed factions for months to reopen a valve at Rayana, a town on the pipeline's route to the northern coast.

    Mohamed Al-Gurj, a spokesman for the PFG faction in Rayana, said a valve had been reopened on Wednesday, after coordination between a PFG unit headed by Mohamed Basheer, an LNA commander in the nearby town of Zintan, and the NOC. The PFG and military officials had announced a deal on Wednesday.

    But an oil worker from Mellitah Oil and Gas, which exports oil from El Feel, said a separate PFG group from the local Tebu ethnic group had prevented a restart there.

    "El Feel oil field is not operating yet because the petroleum facilities guards from the Tebu who guard the field rejected the reopening," said the employee, speaking on condition of anonymity. "Although we carried out a start-up process last night, we were surprised by the PFG," he said.

    An official from Sharara field, who also did not want to be named, said there had been no instruction to resume pumping oil there.

    Mazen Ramadan, an adviser to Libya's U.N.-backed government in Tripoli, said the reopening of the valve at Rayana had been agreed with representatives from the nearby town of Zintan, following demands for local development and exemption from prosecution for blockaders.

    But he said he was taken aback by the PFG announcement. "We contacted Zintan but they have denied that they have a unit of PFG with this name," he said.

    There has been no production at Sharara since the Rayana valve was closed in November 2014, while El Feel continued some production until April 2015. The NOC said in September the pipeline closure had cost Libya $27 billion.

    Output has also been interrupted in the past by rival armed factions present at Sharara and El Feel, including from the Tebu and Tuareg ethnic groups.

    El Sharara is a joint venture between the NOC and Spain's Repsol, with a production capacity of about 370,000 bpd. El Feel is run by the NOC and Italy's ENI with a capacity of about 58,000 bpd.

    http://www.reuters.com/article/us-libya-security-oil-idUSKBN1442HN

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    Is Rosneft looking to build a pipeline to export gas from Zohr to Europe?


    There is speculation in the Russian media this week about whether Rosneft is planning a pipeline to export gas from the Zohr field to Europe. Russia’s Economy Today (Russian) quotes energy analyst Igor Yushkov from that country’s National Energy Security Fund as saying that Rosneft’s acquisition of a 30% participating interest in Eni’s Shorouk offshore concession for USD 1.125 bn signals an ambition to export to the EU through a pipeline.

    Rosneft, he says, is positioning itself as Egypt’s main export partner on the Zohr field. Meanwhile, state-owned Sputnik’s Arabic site is running with a report that a pipeline is definitely in the cards in what we’re reading as a pickup of the Economy Today piece. We’ll be keeping a close eye on this one, folks.

    http://enterprise.press/stories/2016/12/15/is-rosneft-looking-to-build-a-pipeline-to-export-gas-from-zohr-to-europe/
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    India's oil imports jump 12.7 pct y/y in Nov


    India's oil imports in November jumped about 12.7 percent from a year ago to 18.76 million tonnes or 4.58 million barrels per day, with imports of oil products rising 34.7 percent, government data showed.

    Exports fell 0.8 percent during November from a year earlier, the data showed. The data for imports and exports is preliminary because
    private refiners share numbers at their discretion.

    http://in.reuters.com/article/india-fuel-imports-idINL4N1EA3PA

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    Japan's Mitsui to invest in Russia's Ros Agro, R-Pharm


     Japanese trading house Mitsui & Co is set to acquire equity stakes in Russian agriculture firm Ros Agro and Moscow drugmaker R-Pharm as Russian President Vladimir Putin visits Japan this week, Nikkei business daily said on Thursday.

    The report comes after Russian officials on Tuesday cautioned against expecting a breakthrough in Moscow's territorial dispute with Tokyo when Putin visits, and proposed focusing instead on commercial deals.

    Mitsui and Ros Agro will sign a memorandum of understanding (MOU) on a capital and business tie-up under which the Japanese firm is expected to invest several billion yen in London-listed Ros Agro, which deals in grains, cooking oil to meat, Nikkei said without citing sources.

    Mitsui is also expected to spend 15 billion yen to 20 billion yen ($128 million-$171 million) for a roughly 10 percent stake in R-Pharm, which produces drugs under licences from pharmaceutical firms such as in India, the report said.

    A Mitsui spokeswoman declined to comment.

    Japan's JGC Corp plans to sign an MOU with Russia's Pacific island of Sakhalin on a feasibility study for building a miniature natural gas liquefaction facility, the Nikkei said.

    Under the study, the facility to be built on the eastern part of the island would produce up to 12,000 tonnes of liquefied natural gas (LNG) per annum to provide fuel for domestic households and businesses on the island, it added.

    A JGC spokesman declined to comment.

    A Japanese venture led by state-run Japan Oil, Gas and Metals National Corp (JOGMEC) announced on Wednesday it and Russia's Irkutsk Oil Co would enter the production phase at the onshore Ichyodinskoye oilfield in the Zapadno-Yaraktinsky Block (ZY block), north of Irkutsk.

    The Japanese venture in which Japan's Inpex Corp and Itochu Corp also have stakes has a 49 percent stake in the operating firm, while the rest is held by Irkutsk Oil.

    http://www.reuters.com/article/japan-russia-business-idUSL4N1E95NB

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    Petrofac says services business sees higher bidding activity


    British oilfield services company Petrofac Ltd said deferral and cancellation of projects hurt order intake at its biggest unit this year, but the recovery in oil prices has helped improve bidding activity for services contracts in the final quarter.

    The company's stock was down about 4.4 percent at 870 pence at 0900 GMT on Thursday on the London Stock Exchange.

    Petrofac's engineering and production services unit was performing in-line with expectations and is on track to make up in part for project deferral and cancellations at the biggest unit, engineering and construction, the company said in a statement on Thursday.

    Oil producers have cut billions of dollars in exploration and production spending to weather a prolonged slump in oil prices that has hurt demand for oilfield services companies.

    However, crude prices have modestly recovered from 13-year lows to more than $50 a barrel.

    Petrofac's peer John Wood Group Plc's chief financial officer, David Kemp, said on Wednesday that the company showed modest recovery in some of its oil and gas markets, including U.S. shale and offshore oil exploration and drilling businesses.

    Petrofac has high exposure to the Middle East oil markets that resulted in good backlog coverage for 2017 as record production in the region drove up contract awards.

    "Bidding activity has increased during the last quarter of the year... we are well placed for recovery in our core markets," Group CFO Alastair Cochran said in a call with reporters.

    Petrofac said its order book backlog stood at $14.5 billion as of Nov. 30. It had recorded an order book value of $20.7 billion in 2015 due to higher orders from its core Middle Eastern markets.

    The company said its full-year net profit is expected to come in above forecast as record revenues and cost-cutting measures have paid off.

    http://www.reuters.com/article/petrofac-results-idUSL4N1EA2VQ
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    PNG gas hopes buoyed as ExxonMobil raises offer for InterOil


    An increased takeover offer from ExxonMobil for Papua New Guinea player InterOil augurs well for progress on Oil Search's LNG expansion ambitions but has revealed a downgrade in the size of the Elk-Antelope gas resource.

    After a successful court appeal against the $US2.2 billion-plus takeover in November, Exxon has raised the maximum price payable for InterOil by about 10 per cent to $US78.94 per share.

    The new terms have been endorsed by InterOil's board and a revised timetable set to complete the transaction, aiming for closure on March 31.

    The delay in Exxon's acquisition of InterOil has slowed progress on a collaboration plan between the Exxon-led PNG LNG project and the Total-led Papua LNG venture that owns Elk-Antelope. The two projects, each partly owned by Oil Search, are set to support the next phase of expansion of LNG in PNG.

    The revised terms of the takeover paves the way for a new vote by InterOil shareholders on the deal, now expected in February. While shareholders had previously approved the original takeover terms, former InterOil chief executive Phil Mulacek opposed them and successfully argued in the Canadian Court of Appeal that the deal was unfair.

    Mr Mulacek argued that Exxon's offer significantly undervalued InterOil given the Elk-Antelope fields "could hold up to 2 billion boe [barrels of oil equivalent], or about 10 per cent of total current ExxonMobil reserves."

    He has the support of many small shareholders in InterOil who are convinced their company is worth much more than the US oil giant is offering.

    Adding to their frustration, InterOil chief executive Michael Hession is set to reap a payment of almost $US40 million if the takeover proceeds under the terms of his employment contract, an amount described as "excessive" by respected proxy adviser ISS.

    Exxon, which outbid Oil Search for InterOil, has now increased the upper range of its offer, by raising the cap of the resource estimate it would pay for to 11 trillion cubic feet from 10 tcf. The offer is structured as a $US45 per share flat cash payment, plus an extra $US7.07 per share for each tcf of gas certified as being held in Elk-Antelope above 6.2 tcf.

    But in less positive news for all players involved, InterOil released an update of the amount of gas likely to be in Elk-Antelope which reduces the best estimate to 7.8 tcf from 10.2 tcf. The latest estimate doesn't include results from the Antelope-7 well currently being drilled.

    InterOil chairman Chris Finlayson said the company was "pleased to have reached an agreement" with Exxon on the deal and reiterated the board saw it as in the best interests of shareholders.

    The break fee payable by InterOil has been increased to $US100 million from $US67 million.



    Read more: http://www.afr.com/business/energy/gas/png-gas-hopes-buoyed-as-exxonmobil-raises-offer-for-interoil-20161216-gtcjwp?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-afr-o&campaign_code=nocode&promote_channel=social_twitter#ixzz4Syu3eYjO
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    Brigham reverses into Diamondback!


    Diamondback Energy Inc., Midland, Tex., has agreed to acquire Austin-based Brigham Resources Operating LLC and Brigham Resources Midstream LLC for $2.43 billion. It’s Diamondback’s second deal for southern Delaware basin acreage since it entered the area earlier this year.

    The deal covers 76,319 net leasehold acres in Pecos and Reeves counties, Tex., with November net production averaging 9,482 boe/d, of which 77% was oil, from 48 gross producing horizontal wells and 16 gross producing vertical wells. The acreage is 83% operated with average working interest of 81%.

    Diamondback says recent horizontal wells on and surrounding the properties have confirmed geochemical data that indicate Wolfcamp A, Wolfcamp B, 3rd Bone Spring, and 2nd Bone Spring as primary targets.

    The firm estimates development potential within the footprint of the deal includes 1,213 net horizontal locations, and says additional development and downspacing potential may exist throughout the Wolfcamp and Bone Spring intervals.

    The contiguous position supports average lateral lengths of 8,000 ft based on current leasehold, with multiple opportunities to increase lateral lengths, the firm says.

    The acquisition, effective Jan. 1, 2017, and expected to close in February, comprises $1.62 billion in cash and 7.69 million shares of Diamondback common stock. Diamondback also will receive $50 million in existing infrastructure, including gas pipeline, fresh water access, frac ponds, and salt water gathering and disposal infrastructure.

    Major Permian player

    Once complete, Diamondback’s leasehold interests in the Permian basin will total 182,000 net surface acres.

    “We feel that the single well economics of over 100% internal rates of return at today’s commodity prices on this [newly acquired] acreage compete for capital in the top quartile of our existing inventory and are comparable to the acreage we acquired in July 2016 in the southern Delaware basin,” said Travis Stice, Diamondback chief executive officer. In that deal, Diamondback gained 19,180 net surface acres primarily in Reeves and Ward counties, Tex., from an unnamed seller for $560 million.

    Stice said the firm believes it can now support 15-20 operated rigs overall. “In addition to our soon to be added sixth rig that will begin developing our previously acquired acreage in the Delaware basin, we plan to add two additional rigs to develop this pending acquisition in 2017,” he said.

    Diamondback also believes production from the new acreage along with increased production from its other assets will enable the firm’s overall production growth to surpass 60% in 2017 at the midpoint of its current guidance range.

    Brigham Resources was founded in 2012 by current Chairman Bud Brigham, current Chief Executive Officer Gene Shepherd, and former members of management from Brigham Exploration Co. following its sale to Statoil ASA. It’s backed by private equity firms Warburg Pincus LLC, Yorktown Partners LLC, and Pine Brook Road Partners LLC.

    http://www.ogj.com/articles/2016/12/diamondback-boosts-delaware-basin-position-with-2-4-billion-purchase.html

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    Pioneer Sees Oil Reaching $70 in 2018 as Global Glut Burns Off

    Pioneer Sees Oil Reaching $70 in 2018 as Global Glut Burns Off

    Texas driller Pioneer Natural Resources Co. sees crude prices surging to $70 a barrel in a year’s time as the world finally burns through its surplus of oil and drilling in the Permian shale basin heats up.

    Pioneer has locked in future sales through hedging contracts for about 85 percent of its oil and natural gas output next year, Chief Operating Officer Tim Dove said in an interview Tuesday in Pioneer’s Midland, Texas office. The company hasn’t hedged much for 2018, as it bets that prices have room to run beyond their jump in the past two weeks, he said.

    We haven’t done much hedging for just that reason," Dove said. “We think there’s a chance that ’18 can be better."

    Crude prices have climbed to more than $50 a barrel since Nov. 30, after OPEC agreed to its first output cut in eight years and other major producers followed suit. While that’s raised fears that U.S. explorers will raise their own pumping and flood the market, Dove said Pioneer is sticking with its current plans to operate 17 drilling rigs in the Permian. The company expects to increase output by 15 percent a year through 2020.

    Shale companies have survived more than two years of slumping prices in part by negotiating steep discounts with the contractors who drill their wells and provide other services in the field. Dove said he doesn’t expect that to change next year, even as activity picks up.

    “The service companies right now have a tremendous amount of idled equipment; all you have to do is drive down Interstate 20 here and you can see stacked rigs as far as the eye can see," he said. “The fact is, it’ll be a while before they have pricing power again."

    https://www.bloomberg.com/news/articles/2016-12-15/pioneer-sees-oil-reaching-70-in-2018-as-global-glut-burns-off

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    Chesapeake Energy Drills Deeper for Profit - wsj



    Doug Lawler watched a drilling rig’s high-pressure pumps rumble as workers bored in to a massive natural-gas well, part of a new drilling campaign the Chesapeake Energy Corp. chief executive calls “Prop-a-geddon.”

    Named for the sand that drillers use to prop open hydraulically fractured rocks, Prop-a-geddon is an experiment to create supersize oil and gas wells that the company estimates can extract fossil fuels for roughly 75% less than typical wells, thanks to potentially greater economies of scale.

    This well, in the Haynesville Shale formation around Shreveport, La., went 2 miles deep and another 2 miles horizontally, and used 51 million pounds of sand, which the company believes is a world record. Typical wells in this area extend about 5,000 feet, or less than a mile.

    “It’s the biggest job in the history of the Haynesville,” Mr. Lawler said of the massive size of the fracking job under way. “It’s absolutely critical to the company.”

    In a world where oil prices look poised to stay lower for longer, even after the Organization of the Petroleum Exporting Countries agreed to a production cut last week, the challenge for U.S. shale drillers is no longer unlocking new supplies—it is showing they can make money doing it.

    For Chesapeake, a deeply indebted pioneer of the U.S. shale boom co-founded by the late wildcatter Aubrey McClendon, its very survival may depend on figuring it out.

    Under Mr. McClendon, Chesapeake became the second-largest U.S. natural-gas producer after Exxon Mobil Corp., leading a rush to lease land for drilling from Pennsylvania to Texas. But in doing so, it piled up a mountain of debt and a litany of lawsuits that left it reeling—and led to the ouster of Mr. McClendon—even before energy prices collapsed in 2014.

    Mr. Lawler, brought in by activist investors, is selling assets to pare debt, and trying to transition the money-losing company into a prudent spender that can produce oil and gas more economically, and eventually turn a profit.

    He estimates the Oklahoma City-based company’s true debt was roughly $21 billion when he took over in 2013. Between 2010 and 2012, the company had spent nearly $30 billion more on drilling and leasing than it had brought in from operations.

    This year, Chesapeake expects to spend no more than $1.75 billion to produce between 617,000 and 637,000 barrels of oil equivalent a day. That is nearly 90% less than the $14.7 billion Chesapeake spent in 2012 to produce 648,000 barrels of oil equivalent a day. Debt, meanwhile, has been cut to $10.9 billion.

    Chesapeake has reduced its workforce by roughly 70% to about 3,500 employees and shrunk its drillable land portfolio to about 7 million acres, compared with 15 million at the end of 2012.

    Last week, Chesapeake disclosed the sale of 78,000 acres in the Haynesville to an unnamed private company for $450 million. It plans to sell an additional 50,000 acres in the field in the coming months, though it would still retain roughly 250,000 acres.

    While the company’s turnaround remains far from assured, it has so far avoided bankruptcy restructuring. That fate, which has befallen 88 U.S. oil and gas producers since the start of 2015 according to law firm Haynes and Boone LLP, looked possible for Chesapeake earlier this year, when its stock fell under $2 a share amid a drop in prices.

    Some investors have bought into a comeback: Chesapeake shares are up fourfold from their 52-week low as asset sales and debt reductions have diminished concerns. The stock is now trading at $7.27.

    “For what a company has to do now to survive and thrive, they are doing all the right things,” said Robert Clarke, an analyst at researcher Wood Mackenzie Ltd.

    Southeastern Asset Management Inc., headed by Mason Hawkins, remains Chesapeake’s largest shareholder with 10.5% of its stock. It declined to comment. Billionaire Carl Icahn, who worked with Mr. Hawkins to recruit Mr. Lawler, sold more than half his stake in the company in September.

    ‘For what a company has to do now to survive and thrive, they are doing all the right things. ’

    —Robert Clarke, Wood Mackenzie

    Mr. Lawler would like to cut Chesapeake’s debt to $6 billion. Although the company is still outspending cash from operations, he expects it to be cash-flow neutral in 2018, assuming an average oil price of about $60 a barrel.

    A big part of hitting those goals depends on what Chesapeake accomplishes with the vast portfolio of oil and gas fields originally leased by Mr. McClendon, including some in Wyoming and Oklahoma in addition to Louisiana.

    Frank Patterson, Chesapeake’s executive vice president of exploration and production, told analysts in October that the company was learning how to get more out of the ground by drilling and fracking longer wells.

    “What we’re learning in the Haynesville, we’re testing in the Eagle Ford, we’re going to apply to the Utica,” he said. “It’s a game changer.”

    Donning a hard hat and chatting with a work crew, Mr. Lawler was surveying those lessons firsthand last month in the Haynesville—and feeling confident a turnaround was under way.

    “It’s just a matter of time,” he said.

    http://www.wsj.com/articles/chesapeake-energy-drills-deeper-for-profit-1481834142

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    Anadarko Closes Deepwater Gulf of Mexico Acquisition and Raises Oil-Growth Expectations


    Anadarko Petroleum Corporation announced today it has closed the acquisition of Freeport-McMoRan Oil & Gas’s deepwater Gulf of Mexico assets. The transaction is effective Aug. 1, 2016. Anadarko also increased its oil-growth expectations and discussed plans to further accelerate its rig activity in the Delaware and DJ basins. In addition, the company provided an update on its deepwater drilling activities in the Gulf of Mexico, highlighted by successes at Warrior and Phobos, which add to its inventory of future tieback opportunities, as well as a successful development well in the Heidelberg field.

    ACQUISITION BENEFITS

    Doubles ownership in the Lucius development to approximately 49 percent
    Doubles Gulf of Mexico production to more than 160,000 net barrels of oil equivalent (BOE) per day
    Adds three operated deepwater facilities, bringing Anadarko’s total operated facilities to 10
    Enhances cash flow to accelerate activity in the Delaware and DJ basins

    “As a result of closing this transaction, Anadarko now operates the largest number of floating production facilities in the deepwater Gulf of Mexico, which provides a competitive advantage to leverage this infrastructure into attractive new investment opportunities,” said Anadarko Chairman, President and CEO Al Walker. “This region continues to play a key role in our portfolio by contributing to our higher-margin oil growth profile, while generating substantial future free cash flow to accelerate the growth of our world-class U.S. onshore assets in the Delaware and DJ basins. The expanded portfolio of deepwater facilities provides numerous hub-and-spoke opportunities that can generate rates of return of better than 50 percent at today’s prices. Given our industry-leading capabilities in deepwater project management, production solutions and exploration success, adding these high-quality assets greatly improves our ability to deliver strong performance in a volatile commodity environment.”

    INCREASED OIL-GROWTH OUTLOOK

    At the time the acquisition was announced, Anadarko indicated the acquired assets would generate substantial free cash flow over time, which would facilitate increased investment in the U.S. onshore and position the company to deliver a five-year compounded oil growth rate of 10 to 12 percent in a $50 to $60 oil-price environment. As previously announced, in anticipation of closing the acquisition, Anadarko added two rigs in each of its Delaware and DJ basin positions early in the fourth quarter. Going forward, the company plans to further increase activity in each area, with expectations of ending the first quarter of 2017 with 14 operated rigs in the Delaware Basin and six operated rigs in the DJ Basin. This compares to seven operated rigs and one operated rig in each of these basins, respectively, at the end of the third-quarter 2016. The company’s new investments in these basins generate rates of return of 35 percent to more than 60 percent at today’s prices.

    “As a result of our large and well-located acreage positions, improving cost structure, midstream infrastructure advantages, and commodity-price outlook, we now believe we have the ability to deliver a five-year compounded annual oil growth rate of 12 to 14 percent, while investing within expected cash inflows,” said Walker.

    RECENT DRILLING ACTIVITY ADDS TO POTENTIAL TIEBACK INVENTORY

    Further highlighting the value of Anadarko’s deepwater Gulf of Mexico tieback and exploration program, the company today announced its Warrior exploration well encountered more than 210 net feet of oil pay in multiple high-quality Miocene-aged reservoirs. The Warrior discovery is located approximately 3 miles from the Anadarko-operated K2 field and is expected to be tied back to its Marco Polo production facility. Anadarko is the operator at Warrior with a 65-percent working interest. Other partners include Ecopetrol (20 percent) and Mitsubishi Corporation Exploration Co., Ltd. (15 percent).

    At the Phobos appraisal well, which is located approximately 12 miles south of the Anadarko-operated Lucius facility, the company has already encountered more than 90 net feet of high-quality oil pay in a Pliocene-aged reservoir similar to the nearby Lucius field. This secondary accumulation was present in the Phobos discovery well and will be evaluated for tieback to the Lucius facility. Meanwhile, drilling is ongoing toward the primary objective in the Wilcox formation. Anadarko has a 100-percent working interest at Phobos.

    At the Heidelberg field, the fifth production well currently being drilled has encountered the reservoir sand with more than 150 net feet of oil pay to date. The well will be completed immediately following drilling operations and is expected to be brought on production early next year.

    “The successes to date at Warrior and Phobos further demonstrate the value of our assets in the deepwater Gulf of Mexico and our tieback strategy. It also illustrates why we have tremendous confidence in the potential of our ‘3 Ds’ – the Deepwater, Delaware and DJ – to drive growth and value for many years to come,” added Walker. “We look forward to providing further details on these successful developments and other results during the first quarter of next year.”

    Anadarko Petroleum Corporation’s mission is to deliver a competitive and sustainable rate of return to shareholders by exploring for, acquiring and developing oil and natural gas resources vital to the world’s health and welfare. As of year-end 2015, the company had approximately 2.06 billion barrels-equivalent of proved reserves, making it one of the world’s largest independent exploration and production companies. For more information about Anadarko and Flash Feed updates, please visit www.anadarko.com.

    http://boereport.com/2016/12/15/anadarko-closes-deepwater-gulf-of-mexico-acquisition-and-raises-oil-growth-expectations/

    U.S.-based oil and gas company Anadarko Petroleum has made a hydrocarbon discovery in the Warrior exploration well and in the Phobos appraisal well, both located in the U.S. Gulf of Mexico.

    The oil company said on Thursday that the Warrior well, located in the Green Canyon area. encountered more than 210 net feet of oil pay in multiple high-quality Miocene-aged reservoirs. Drilling reached a total depth of 26,957 feet (8.216 m) in water depths of 4,144 feet (1.263 m).

    The Warrior discovery is located approximately 3 miles from the Anadarko-operated K2 field and is expected to be tied back to its Marco Polo production platform.

    http://www.offshoreenergytoday.com/anadarko-hits-double-pay-in-gulf-of-mexico/
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    Canadian Natural Resources Limited Announces 2017 Budget


    Commenting on the Company’s 2017 budget, Steve Laut, President of Canadian Natural, stated, “With Horizon Phase 2B online, Canadian Natural is now a more robust and sustainable company. In 2017 we will complete the last major component of the Horizon expansion and make a significant step towards our transition to a long-life, low decline asset base with Horizon Phase 3 targeted to be on stream in Q4 2017. The robustness of the Company is reflected in our ability to grow production 6% in 2017 with a capital program of $3.9 billion well below targeted cash flow, generating free cash flow of approximately $1.7 billion after the Company’s current dividend of $1.1 billion. Canadian Natural will take a balanced approach on how we allocate free cash flow between enhancing balance sheet strength, increasing returns to shareholders, investing in economic resource development and opportunistic acquisitions.

    With a large diverse portfolio of assets, the Company retains significant capital flexibility. In 2017, the Company will continue to allocate capital using a disciplined approach. This disciplined approach provides the Company with opportunities to increase the Company’s E&P drilling capital program by up to approximately $525 million, the potential for a Horizon debottleneck requiring approximately $70 million of project capital or the flexibility to rollback our capital program by up to approximately $900 million if commodity price volatility or economic conditions dictate. The 2017 capital program will deliver near-term production growth from the Horizon Phase 3 expansion while we work to advance the Company’s mid-term project at Kirby North. Going forward, with a greater base of sustainable free cash flow that our long-life, low decline assets provide, the Company will have increased flexibility to allocate cash flow to maximize shareholder value.”

    Canadian Natural’s Chief Financial Officer, Corey Bieber, continued, “Canadian Natural has effectively managed our balance sheet in 2016 through proactive capital allocation and a continued focus on lowering our overall operating and capital cost structures. In 2017, we target to continue this focus, while bringing the major component of our transition to long-life, low decline asset base to completion. As a result, Canadian Natural is confident we can deliver on the Company’s cash flow allocation pillars. We target to quickly strengthen key balance sheet metrics to the low-end of our long-term targeted ranges and increase returns to shareholders as we have over the past 16 years.”

    http://boereport.com/2016/12/15/canadian-natural-resources-limited-announces-2017-budget/

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    Job Ads for Oil & Gas Workers Up 50% Since August


    Ever use the job site called Indeed? The site aggregates job ads from everywhere it can find them from around the web–into one very useful search engine.

    Think of it as Google for job listings.

    Indeed has its own blog and employs its own economists to analyze trends. Today the site released data that shows oil and gas industry job postings have spiked up 50% since a low in August, which is a good sign that the industry is, indeed (pun intended) turning around.

    http://marcellusdrilling.com/2016/12/job-ads-for-oil-gas-workers-up-50-since-august/

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    Alternative Energy

    New Australian big solar fund adds SunPower plants to portfolio


    Recently launched Australian sustainable investment fund, New Energy Solar, has made two new investments in the US big solar market, taking a majority interest in two California solar farms, developed by US PV giant, SunPower.

    The two new US investments – which take the fund’s solar assets to a total of four since it was established in November 2015 – were announced by New Energy Solar and SunPower on Thursday.

    New Energy Solar, headed up by property and investment executive Tom Kline, is just the latest in a number of new funds set up in Australia – and abroad – to capitalise on the booming global large-scale renewable energy industry.

    The fund hasn’t made made any investments in Australia, as yet, but according to its September Quarterly Update, had 300MW of potential local solar projects under review and expected opportunities to “ramp up” in 2017-2018, off the back of ARENA’s latest large-scale funding round.

    “Australia’s excellent natural solar resources, coupled with a domestic solar industry that is still in a state of relative infancy compared with other markets, supports the Fund’s optimistic outlook for future domestic investment opportunities,” the September update said.

    The new US SunPower projects, both located in Kern County, California, will each have a capacity of 67.4MW once completed – construction began in mid-2015, with full commercial operation expected to be achieved later this month.

    SunPower will retain an ownership interest in the two projects and provide ongoing operation and maintenance services. And both have secured long-term power purchase agreements – one with Stanford University and one with Turlock Irrigation District.

    New Energy Solar, which has also acquired shares in two North Carolina solar farms, one 43MW and one 47.6MW, said the SunPower projects were “excellent additions” to the fund’s portfolio.

    “We are proud to partner with SunPower, one of the most experienced and leading developers and operators of utility-scale solar power,” said Kline in a statement.

    Indeed, as the two companies note in their joint announcement, both the Kern County projects will serve electricity demand nearly 500km away.

    “Projects like these demonstrate the flexibility with which organisations can now take advantage of cost-effective solar power by using larger capacity off-site solar resources to reliably serve a greater percentage of demand,” the media statement said.

    Nam Nguyen, SunPower’s senior vice president noted that off-site solar allows for land-constrained organisations to benefit from the economies of scale achieved with larger solar installations.

    “We congratulate New Energy Solar on their leadership in recognizing the value of this model and thank them for their partnership,” Nguyen said.

    For New Energy Solar, the two projects are expected to generate a five-year average yield of approximately 6.5 per cent per annum.

    http://reneweconomy.com.au/new-australian-big-solar-fund-adds-sunpower-plants-portfolio-37302/
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    Precious Metals

    Silver miner Hochschild says production halted at mine in Peru


    Silver miner Hochschild Mining Plc said production at its Pallancata silver mine in Peru had been temporarily suspended, as members of a local community blocked a road and demanded renegotiation of agreements for land easements.

    An easement gives a party the right to use or enter onto another's property without owning it.

    Hochschild's shares were down 5.2 percent at 230.4 pence at 0819 GMT on the London Stock Exchange.

    The miner, which operates in Peru, Chile and Argentina, said its forecast for 2016 production and costs would not be affected by the production halt.

    Talks facilitated by the government are ongoing with relevant parties, the company said.

    Hochschild forecast in October full-year production of 35 million silver equivalent ounces and all-in sustaining costs, or the total cost of sustaining production and capital expenditure, in the range of $11-$11.5 per silver equivalent ounce.

    http://www.reuters.com/article/hochschild-min-production-idUSL4N1EA321
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    Base Metals

    Equally weighted Base Metals Break Out.

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    Philippines cancels environmental permits of three mines – Minister


    The Philippine government has cancelled the environmental compliance certificates (ECC) of three mines, including two nickel producers, Environment and Natural Resources Secretary Regina Lopez said on Thursday.

    The agency is reviewing hundreds of ECCs granted by previous governments including those granted to mines in a crackdown on environmental degradation. The Philippines is the world's top nickel ore supplier.

    That is a separate review from an environmental audit of the country's 41 mines completed in August and the full results of which, Lopez said, would be released in January. Ten mines have been halted so far and another 20 face suspension.

    "We will announce the decision in January, probably around the second week," Lopez told a media briefing.

    http://www.miningweekly.com/article/philippines-cancels-environmental-permits-of-three-mines-minister-2016-12-15
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    Steel, Iron Ore and Coal

    China to cut coal consumption share below 58pct, NEA


    China plans to reduce the share of coal below 58% in its primary energy use in the 13th Five-Year period ended in 2020, said Li Yangzhe, vice director of the National Energy Administration, in a national energy forum on December 10.

    The share of non-fossil energy is planned to grow to 15% and that of natural gas is to rise to 10%, said Li.

    Data showed the share of coal in China's energy mix has been on the downward trajectory in recent years, with a proportion of 65.7%, 66.6%, and 68.8% in 2012-2014.

    According to the government's plan, China will boost use of non-fossil energy such as wind and solar energy on the one hand, and promote efficient and clean use of fossil fuel by expanding natural gas use, upgrading oil product quality and cutting surplus coal capacity on the other hand.

    Besides, the government will ensure supply of natural gas and encourage more private enterprises to develop oil resources.

    According to Li, China's new installed nuclear capacity may reach 30 GW by 2020, raising the total capacity to 58 GW. Total hydropower capacity will reach 340 GW by then.

    http://www.sxcoal.com/news/4550286/info/en
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    Nippon Steel, Glencore settle Q1 semi-soft coking coal price


    Australian producer Glencore and Japanese steelmaker Nippon Steel have settled the January-March 2017 semi-soft coking coal contract price at $171/t, up 32% from $130/t in the last quarter of this year, Platts reported on December 14, quoting three sources close to the matter.

    This comes after Nippon Steel inked premium hard coking coal price in the first quarter of 2017 for Glencore's premium mid-vol coal at $285/t FOB Australia on December 12.

    Market participants said that while the $171/t FOB Australia price was higher than expected for January-March 2017, the semi-soft-to-premium coal price ratio represents a multi-year low.

    The semi-soft settlement for the first quarter next year is equivalent to 60% of the premium hard coking coal settlement price, below the 65% price ratio achieved in the fourth quarter 2016.

    The average price relativity over the last eight quarters has been 78%.

    The huge price increase from the fourth quarter is acceptable, as the relativity is still low, a north Asian steel maker was cited by Platts as said.

    Other Asian buyers were less satisfied, with one saying that weak thermal coal prices did not justify such a high semi-soft settlement price.

    Sources from two other Australian mining companies were pleased with the settlement price for January-March 2017, but admitted it would encourage coal producers to switch more tonnes from the thermal coal market into that of metallurgical coal, the report said.

    The largest Australian suppliers of semi-soft coking coal are Rio Tinto, Glencore, Yancoal, Peabody, BHP Billiton and Whitehaven.

    http://www.sxcoal.com/news/4550323/info/en

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    China to clear import tax on Australian thermal coal

    China to clear import tax on Australian thermal coal

    Australian thermal coal cargoes arriving at China's ports on January 1, 2017, and thereafter will be clear of the Asian country's 2% import tax, currently equivalent to $1.50/t, and levied on the delivered CFR South China price of shipments, Platts reported, citing the Australian government.

    Beijing introduced a 6% tax on all thermal coal imports in October 2014, and went on to lower its rate on Australian-origin thermal coal to 4% in December 2015, and then to 2% effective January 1, 2016.

    "Under China-Australia Free Trade Agreement (ChAFTA) commitments, this tariff is scheduled to be fully eliminated (cut to 0%) for Australian-origin thermal coal on January 1, 2017," said a spokeswoman for the Australian government's department of foreign affairs and trade in an emailed response to S&P Global Platts' questions.

    Market participants will be watching to see how prices in the Chinese seaborne market react to the lifting of the import tax, and whether CFR South China prices rise by an equivalent amount, about $1.50/t.

    January-loading Capesize cargoes of Australian 5,500 kcal/kg NAR thermal coal were heard bid by Chinese buyers at $66/t FOB Newcastle to offer prices at $67.50-$68/t.

    Total imports of Australian coal by China fell 1.2% on year to 58.18 million tonnes over January-October this year, showed data from China's General Administration of Customs.

    Although China will be lifting its import tax on Australian thermal coal shipments early in the new year, Beijing is maintaining its 6% tax on imports of thermal coal from Colombia, Russia and South Africa.

    Indonesian thermal coal shipments to China are exempt from any import tax under a bilateral free trade agreement.

    http://www.sxcoal.com/news/4550347/info/en
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    JSPL ramps up coal production on higher prices


    Jindal Steel and Power (JSPL) reported a positive result at its mining operations in southern Africa and Australia in the first two quarters in the fiscal year of 2017, on the back of higher coal prices, said the company in its latest results announcement.

    JSPL's overseas mine in Australia, Mozambique and South Africa are set to witness a major turnaround during the third and fourth quarters. "All mines are already in operation and their productions are being ramped up. If the present prices of coking and thermal coal sustain at around the present level, the mining assets will contribute a significant value to the company's EBITDA performance," said the company.

    In South Africa, anthracite production increased, with a 50% hike in capacity,
    and the mines report higher earnings on the back of higher coal prices, the company said.

    In Mozambique, Jindal's mines resumed coal production on the back of the higher prices in global metallurgical coal markets. The company targeted production of 0.25 million tonnes by the end of the current financial year.

    "The mines in Mozambique are expected to achieve a major turnaround during the coming quarters," the company said.

    The first two quarters also marked a turnaround for JSPL's Australian mining operations, which generated positive earnings. The Wongawilli mine in New South Wales produced 0.04 million tonnes of coal in the quarter and is now ramping up production to 0.1 million tonnes.

    http://www.sxcoal.com/news/4550296/info/en

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    Inner Mongolia Ordos Nov coal sales surge on month


    Coal-rich Ordos in northern China's Inner Mongolia autonomous region sold 59.94 million tonnes of coal in November, surging 24.7% from October and up 14.6% from the year-ago level, showed the official data on December 15.

    Of this, sales of local mines – mines owned by the prefecture and lower-level governments and private mines – stood at 49.27 million tonnes, increasing 18.1% on the year and 26% on the month.

    Coal sales of Shenhua Group Ordos branch nudged up 0.8% from a year ago to 10.67 million tonnes, a rise of 20% from the previous month.

    In November, Ordos' coal price averaged 290 yuan/t, soaring 77.9% from a year prior and up 6.6% from October. Raw coal price averaged 280 yuan/t, rising 64.7% year on year and up 5.7% month on month.

    Ordos sold 478.68 million tonnes of coal over January-November, edging up 0.2% compared to the corresponding period last year, data showed.

    Coal sales from local mines increased 3.5% on the year to 366.78 million tonnes in the first eleven months, while those from Shenhua Group slid 9.4% on the year to 111.90 million tonnes.

    Over the same period, average coal price was 201 yuan/t in Ordos, rising 14.2% year on year.

    http://www.sxcoal.com/news/4550328/info/en

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    Fortescue repays more debt


    Iron-oremajor Fortescue Metals has issued a $1-billion repayment notice for its 2019 senior secured credit facility, resulting in annual interest savings of around $38-million.

    “This $1-billion payment is a continuation of our focused debt repayment strategy and further lowers our total cash position. Fortescue’s nearest debt maturity is in June 2019, and is now less than $2-billion with gross gearing falling below our targeted 40% level once this payment is made,” said Fortescue CEO Nev Power.

    “Our productivity and efficiency initiatives have achieved sustained cost reductions and combined with buoyant market conditions, are generating significant free cash flow which will further strengthen Fortescue’s balance sheet.”

    http://www.miningweekly.com/article/fortescue-repays-more-debt-2016-12-16
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    China's key steel mills daily output edges down 0.24pct in late Nov


    Daily crude steel output of China's key steel mills edged down 0.24% from ten days ago to 1.72 million tonnes over November 21-30, according to data released by the China Iron and Steel Association (CISA).

    The country's total crude steel output was estimated at 2.26 million tonnes each day on average during the same period, dipping 0.44% from ten days ago but gaining 2.26% from the month-ago level, the CISA said.

    By November 30, stocks of steel products at key steel mills stood at 12.4 million tonnes, dropping 5.85% from ten days ago, the CISA data showed.

    By the end of November, total stocks of major steel products in China slid 8.1% month on month to 7.87 million tonnes.

    In late November, the average price of crude steel increased 27 yuan/t from ten days ago to 2,547 yuan/t, while that of steel products surged 110 yuan/t from ten days ago to 3,399 yuan/t.

    In early December, rebar price increased 6.4% from ten days ago to 3,251.6 yuan/t; wire price climbed 5.7% from ten days ago to 3,252.31 yuan/t, showed data from the National Bureau of Statistics.

    http://www.sxcoal.com/news/4550305/info/en
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    Ferrochrome price settled for first quarter – Merafe


    JSE-listed Merafe Resources on Thursday said the European benchmark ferrochrome price for the first quarter of 2017 has been settled at $1.65/lb.

    This, the company noted in a statement to shareholders, would be an increase of 50% from the $1.10/lb price in the fourth quarter of this year.

    In August, the company said it expected to benefit from renewed positive ferrochrome demand trends, as well as from the fact that only four of seven South African ferrochrome producers were in production.

    Merafe – headed by CEO Zanele Matlala – generates income primarily from the Glencore–Merafe Chrome Venture.

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