Mark Latham Commodity Equity Intelligence Service

Wednesday 10th February 2016
Background Stories on

News and Views:

Attached Files


    Oil-Gold Relationship says crisis, and in spades!

    Image title
    Back to Top

    US Investment Grade Credit Risk Spikes To 5-Year Highs

    When it rains it pours...

    The market has taken over The Fed's role - forget above 25bps here or there, the cost of funding for even the highest quality US Corporates is exploding...
    Image title

    Simply put, the credit cycle has turned and is accelerating rapidly - crushing any hopes for debt-funded shareholder-friendliness.

    Attached Files
    Back to Top

    Europe Banks May Face $27 Billion Energy-Loan Losses, BofA Says

    European banks face potential loan losses from energy firms of $27 billion, or about 6 percent of their pretax profit over three years, according to analysts at Bank of America Corp.

    “We believe European banks with large exposures to energy and commodities lending will be increasingly challenged over these positions by shareholders,” analysts Alastair Ryan and Michael Helsby wrote in a note to clients on Tuesday. “While long-term oil- and metal-price forecasts are well above current levels, we expect the equity market to continue to stress exposures to current market prices and deduct potential losses from the earnings multiple of the banks.”

    The $27 billion estimate is “potentially a smaller figure than is implied in the share prices of a number of banks,” and lenders’ potential losses aren’t a threat to the capitalization of the banking system or its ability to provide credit to the economy, they wrote.

    European banks are getting walloped by the global market rout and plunge in global oil prices while struggling to bolster their capital buffers amid record low interest rates in the euro zone. The 46-member Stoxx Europe 600 Banks Index has lost about 27 percent this year, outpacing the 15 percent drop by the wider Stoxx 600.
    Back to Top

    S&P Downgrades Banks With Highest Energy Exposure; Expects

    What is notable is that among the S&P non-sugarcoated comments are some true fire and brimstone gems, which suggest that the big picture for banks with substantial energy exposure is about to get far worse. Here is what S&P said:

    These rating actions follow a review of U.S. regional banks with large energy  loan portfolios as a percentage of both total loans and Tier 1 capital. Since we revised our outlooks to negative on five regional banks in January 2015, energy prices have declined by more than one-third and the asset quality of energy loan portfolios has deteriorated materially, albeit from fairly benign levels.Throughout 2015, criticized and classified assets climbed significantly, and in the fourth quarter, several regional banks with large energy loan portfolios reported increases in loan loss provisions and energy loss reserves to varying degrees, and, in certain cases, nonperforming assets (NPAs) also rose.

    Given further declines in energy prices in recent months, less hedging activity by borrowers, and potentially more difficulty for borrowers to cure (i.e., resolve) borrowing base deficiencies through capital raises or asset sales, we think troubled debt restructurings and NPAs in the energy sector will increase, possibly sharply, in coming quarters. We also think banks will increasingly emphasize the potential loss content among rising levels of NPAs that we expect to see throughout 2016. In addition, we think regulatory scrutiny of energy loan portfolios will increase in 2016, including during the upcoming Shared National Credit (SNC) exams (two will be conducted in 2016) and the annual stress tests regulators mandate, which may encourage the use of higher loss assumptions.

    Many banks have been lowering their energy price assumptions ("price decks") for exploration and production (E&P) loans throughout 2015, resulting in reduced borrowing bases (the value of a borrower's reserves against which banks typically lend). In the next semiannual borrowing-base determination this spring, we expect that borrowing bases will decline further, mainly because of lower energy prices (i.e., valuations) and possibly lower reserve replacement, which could lead to more borrower deficiencies (i.e., loan balances that are greater than the borrowing base). Although banks typically allow borrowers as long as six months to resolve a deficiency, we think many borrowers will have fewer options to cure through debt capital issuances or asset sales and dispositions, which were more common last year. Specifically, the cost of capital has increased for many borrowers, and private equity firms may be less willing to commit additional capital to resolve deficiencies. In addition, E&P borrowers may have unsecured debt in addition to their reserve-based loans, which could pressure their overall finances and push them into default or bankruptcy.
    Equally as important, we think the performance of indirect credit exposures in local energy-focused markets could deteriorate somewhat over the next two years. Although deterioration has not yet been meaningful, we still think the energy price slump could hurt commercial real estate (CRE) in these local markets, such as Houston or smaller cities in Texas, throughout 2016 and 2017.However, we recognize that lower energy prices could have a broad-based positive impact on U.S. consumers and corporations where energy is a significant input cost. We are also wary of strategies that some banks may execute to aggressively grow their loan portfolios in other loan segments, such as CRE, in order to offset contraction in their energy loan portfolios.

    Although we expect that banks will likely continue to increase their loan loss provisions and reserves within their energy loan portfolios over the next several quarters, we consider that currently low NPAs, solid preprovision earnings generation, and, in some cases, high risk-adjusted capital (RAC) ratios offer the banks a cushion to absorb higher loan loss provisions. This was a key factor in our decision to limit our rating actions to one notch at this point.

    In our analysis of these companies, we evaluate the potential impact of certain adverse scenarios, based on default and net loan loss assumptions for different types of energy lending. For example, we expect that E&P reserve-based lending will have lower net loss rates than energy services lending because of conservative advance rates on reserve collateral. We will continue to consider the array of possible assumptions regarding energy loan default and net loss rates, as the cycle develops. At this time, however, we do not believe that these banks' loan loss provisions would exceed preprovision earnings under most foreseeable scenarios, and, thus, our rating actions following this review were limited to a one-notch downgrade.

    The following table presents a few of the key metrics we are tracking and lists the banks that are included in today's actions, as well as others we believe have above-average exposure to energy.

    Image title

    Attached Files
    Back to Top

    Saudi Arabian builders delay payments amid state spending clampdown

    Some Saudi Arabian construction companies are struggling to pay their staff on time in a sign of growing pressure on the economy from low oil prices, which are causing the government to slow spending on building projects.

    In an unusual move this week, the Ministry of Labour issued a public statement saying workers at a "major institution" had complained they had not been paid for months. It said it had established the complaints were true and taken remedial action.

    The ministry did not name the institution or give details of its action; it did not respond to telephone calls seeking comment. But senior industry sources told Reuters that the firm was in the construction sector and that at least several other sizeable companies in the industry faced the same problem.

    One executive at a large Saudi construction firm, speaking on condition of anonymity, told Reuters it had been having problems paying its employees for a few months. "It's not just us, it's several construction companies that work on government projects," he said.

    As the government of the world's top oil exporter slows spending to reduce a budget deficit of around $100 billion, construction is proving to be the hardest hit sector, because firms depend heavily on government business for their cash flow.

    "The pace of execution on some of the existing projects has slowed down, so a project that would take six months to complete may now see an extended execution time line," said Murad Ansari, analyst at EFG-Hermes in Saudi Arabia.

    "Moreover, government payments have slowed down. As a result, contractors which normally rely on short-term funding for projects are feeling an impact on their working capital, so their ability to repay debt is not as strong as it was before."

    Construction accounts for only about 7 percent of Saudi gross domestic product. But in coming months the sector's difficulties could have a wider impact as suppliers are hit and banks lending to the industry take more provisions for potential bad loans.

    Delayed payments to staff, sometimes due to red tape and inefficient bureaucracy rather than financial difficulties, have been a feature of the construction industry in Saudi Arabia and the Gulf for years.

    But the problem has worsened greatly in the last few months because of government austerity measures, industry executives said, speaking on condition of anonymity because of commercial sensitivities.

    "Many contractors are awaiting payment from the government. It's an industry-wide problem," said an executive at another construction firm operating in the kingdom.
    Back to Top

    Russia appeals order to pay $50 bln to Yukos shareholders in Netherlands

    Russia on Tuesday began its appeal in the Netherlands against an international arbitration order that Moscow pay $50 billion in damages to shareholders in the defunct Russian oil giant Yukos.

    Most of Yukos' assets were acquired by Russia's state-owned oil producer Rosneft after Yukos was declared bankrupt and its founder Mikhail Khodorkovsky was imprisoned.

    Once Russia's richest man, Khodorkovsky was accused of tax evasion and fraud after he fell foul of the Kremlin. He was released suddenly in December 2013.

    In July 2014, the Permanent Court of Arbitration in The Hague issued the order for three cases that had sought a total of $114 billion from Russia for expropriating Yukos' assets.

    Russian's appeal at The Hague District Court seeks to overturn all three decisions and have the damages waived, a court official said.

    A ruling in the case in the Netherlands could be issued in six weeks at the soonest, he said.

    In December, a French court of appeal turned down Russia's request to suspend the seizure of Russian assets in France carried out by former Yukos shareholders.

    Yukos shareholders began in June 2015 seizing bank accounts and properties in Paris and other parts of France belonging to the Russian Federation.
    Back to Top

    Senior lenders back Glencore's loan refinancing

    Global diversified natural resource company Glencore is expected to wrap up senior syndication of a one-year revolving credit that refinances existing debt by the end of next week after a strong market response, bankers said on Tuesday.

    Glencore is refinancing a US$8.45bn loan that supports the company's trading activities, and was agreed in May 2015.

    The refinancing raised around US$8.5bn from Glencore's top lenders. The company may reduce the facility slightly but the deal is unlikely to be below US$8bn, bankers said.

    Glencore's core relationship banks backed the deal despite commodity markets volatility and 34 banks committed US$250m each to the loan.

    Glencore did not immediately comment.

    The loan is expected to be launched to a wider general syndication in April after Glencore releases its results by active bookrunners ABN AMRO, HSBC, ING, Bank of Tokyo-Mitsubishi UFJ and Santander.

    The existing loan was part of a bigger US$15.25bn financing that was arranged in May 2015, which also included a US$6.8bn, five-year revolving credit facility that will stay in place.

    Pricing on the new loan is very competitive, a banker said. Last year's financing paid margins of 40-45bp over Libor, but the market has moved against mining companies in the interim.

    Glencore is rated Baa3/BBB- after recent credit rating downgrades from Moody's and Standard & Poor's (S&P) in December 2015 and February 2016 respectively.

    Moody's said that the pricing environment in the mining industry would remain unfavourable in 2016-17 as a reason for its downgrade and S&P cited material challenges to the mining industry.

    Other recent loans for similarly rated European companies have paid around 50bp over Libor.

    Attached Files
    Back to Top

    Congo drops revisions to mining code on industry opposition

    The Democratic Republic of Congo, the world’s largest source of cobalt and Africa’s biggest copper producer, dropped plans to change its mining code after opposition from mining companies, Mines Minister Martin Kabwelulu said.

    “The mining code which is currently in place will stay in place,” Kabwelulu said at a speech to investors in Cape Town on Wednesday. “You don’t have to think about modifying your business plan. Those who are thinking of investing can do so based on this code.”

    Congo began reviewing the 2002 mining code in 2014. Revised laws approved by the government in March included increases in profit tax to 35% from 30%, raising the government’s free share of new mining projects to 10% from 5% and royalties on copper and cobalt revenue to 3.5% from 2%.

    The Chamber of Mines at the Federation des Entreprises du Congo, a business lobby group, had opposed revisions to the code because of the potential negative impact it could have on investment in mining. Randgold Resources chief executive officer Mark Bristow said in October the proposed revisions to the code risked destroying the industry.

    Randgold mines gold in the Congo in a joint venture with Johannesburg-based AngloGold Ashanti, while companies including Baar, Switzerland-based Glencore and Phoenix, Arizona-based Freeport McMoRan extract copper from the central African nation.
    Back to Top

    Oil and Gas

    Iran says ready to talk with Saudi over oil market conditions: Press TV

    Iranian Oil Minister Bijan Zangeneh said on Tuesday that Tehran is ready to negotiate with Saudi Arabia over the current conditions in the global oil markets, Iran's Press TV reported.

    "We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia," Press TV cited Zangeneh as saying.

    Attached Files
    Back to Top

    Russia's Sechin floats idea of oil output cuts

    The head of Russian state-run oil company Rosneft on Wednesday floated the idea of a coordinated output cut by major oil-producing countries to prop up sagging prices but fell short of saying whether Moscow would contribute to such a plan.

    Rosneft Chief Executive Igor Sechin, in a speech at the IP Week conference in London, attributed oversupply in the market to overproduction by members of the Organization of the Petroleum Exporting Countries.

    He suggested major oil producers each cut production by 1 million barrels per day (bpd).

    Oil prices have slumped more than 70 percent to near $30 a barrel over the past 18 months as supply exceeded demand by up to 2 million bpd after OPEC, seeking to drive higher-cost producers out of the market, decided not to cut production.

    Struggling oil-producing countries have urged OPEC leader Saudi Arabia in recent weeks to call a special meeting to discuss output cuts. Riyadh has indicated it would be willing to consider a cut only if all major producers agreed to one.

    Sechin nevertheless said U.S. shale production, a key driver behind the global glut, would decline in the long term.

    "Shale oil production has its limitations in scope and time ... U.S. shale oil production will reach its peak in 2020," he said.

    Sechin, a close ally of Russian President Vladimir Putin, said however that onshore U.S. producers had proven more resilient to the oil price downturn.

    "Shale oil markets reacted very quickly to the price shock as productivity rose dramatically, costs of production dropped and fracking became more efficient," Sechin said.

    Sechin said he expected Iran to ramp up oil production to between 5 million and 6 million bpd by 2025.
    Back to Top

    Global oil glut set to worsen, says IEA

    The global oil glut is larger than previously thought and the risk of prices falling further has increased, the International Energy Agency has said.

    In its monthly report, the IEA warned that the recent respite was likely to be a “false dawn” and market conditions were weaker than the agency believed when it predicted last month the world could drown in supply.

    The IEA said global oil stocks were likely to build by 2m barrels a day in the first quarter of 2016 and 1.5m barrels a day in the second quarter, with stocks continuing to rise in the second half of the year.

    The Paris-based agency said: “We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s oil market report. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.”

    Oil’s recent rise was driven by hopes that Opec might do a deal with Russia to cut production. Opec, led by Saudi Arabia, has kept pumping oil to protect its share of the global market while attempting to make production unviable for US shale producers.

    The IEA said: “Persistent speculation about a deal between Opec and leading non-Opec producers to cut output appears to be just that: speculation. It is Opec’s business whether or not it makes output cuts either alone or in concert with other producers but the likelihood of coordinated cuts is very low,.”

    The agency trimmed its forecast for 2016 demand growth, which now stands at 1.17m barrels a day after hitting a five-year high of 1.6m in 2015.

    Attached Files
    Back to Top

    Oil traders rush for options to protect against crude gyrations

    Oil traders have scrambled to scoop up options as additional protection against wild swings in prices, sending a key index to its highest level since the worst of the global economic crisis in 2008, data shows.

    To hedge against volatility that has whipsawed oil prices this year, traders have positioned themselves more firmly on both sides of the market. They have jumped into various contracts, including March $25 puts and March $35 calls - which have hit record open interest in recent days.

    Volatility, a gauge of options premiums and activity, for U.S. crude jumped to almost 69 percent on Tuesday, the highest since March 2009, according to Reuters Eikon data. In December 2008, it was above 100.

    The flurry comes as oil benchmarks have tested new 12-1/2-year lows, falling nearly 8 percent on Tuesday, as one of the worst supply gluts in history looks likely to worsen and the possibility of coordinated action among OPEC and non-OPEC producers to rein in production has faded.

    Nearly three weeks ago, Brent's volatility jumped to the highest since late 2008 as traders rushed to snap up additional protection against an even more aggressive sell-off.

    The volatility in recent weeks has also in part been spurred by investors racing to close out massive short positions, according to analysts and traders.

    Short positions in the U.S. futures and options have hovered around the highs it touched in the week to Jan. 12, according to data from the Commodity Futures Trading Commission.

    "There's more uncertainty now, as we approach key turning points in the market after a long downtrend," said John Saucer, vice president of research and analysis at Houston-based Mobius Risk Group.

    Oil prices have crashed about 75 percent since mid-2014 as a supply glut has increased and U.S. shale producers have resisted cutting output substantially, even in the face of plunging prices and mounting inventory.

    "We're back below $30 and from a psychological perspective, there is a fear that we might retest lows hit earlier and that increases implied volatility," Saucer said.

    Big fluctuations in foreign exchange - particularly the U.S. dollar, yuan and the euro - have added to the uncertainty, along with gyrations in equities and concerns about a global recession.

    On Tuesday, the Chicago Board Options Exchange Oil volatility index - based off moves in the U.S. Oil exchange traded fund - jumped more than 6 percent.

    Attached Files
    Back to Top

    Shell: Industry faces major renaissance

    The industry is in the crux of its own renaissance as it grapples with job losses, low oil price and lagging efficiency, according to Shell’s project & technology director.

    Speaking at GE’s annual meeting in Florence, Harry Brekelmans said: “Florence is the birthplace of the renaissance, the time of exploration of discovery and great inventions and of course the oil and gas industry is in need of its own renaissance.

    “This will be how we collectively respond to the tough business environment we find ourselves in.

    “Shell and the whole industry needs to do much in the face of current realities.”

    Realities include development plans taking double the time to produce, wells taking 50% longer to drill and subsea costs rocketing by almost 300%.

    Brekelmans credited a dizzying amount of specifications for slowing the industry’s pace.

    “Every accumulating specification informed by sometimes unique incidents as well as individual engineering preferences has resulted in a proliferation of company specific requirements and this is on top a multitude of industry standards for virtually any piece of equipment,” he said.

    “Hundreds” of standards for valves represent the layers of complexity and duplication found in the industry today, according to the Shell boss.

    “As a result, we are defeating the purpose of an industry standard, as suppliers and service providers strive to meet the needs of their customers through bespoke solutions,” he said.

    “At our project sites and in our processes, we see many examples of “waste” such as rework throughout the supply chain and low time on tools, caused by a large number of interfaces, fragmentation, less experience workforce and unwieldy owner-team set-ups.

    “The aerospace and automotive industries managed to put together much more systematic and rigorous ways of managing requirements

    He added: “In our own industry, we haven’t been able to get to grips in the steady upward trend of cost and delivery time, so this world we now find ourselves in.”

    His sentiment was echoed by BG’s EVP, Jon Harris.

    Harris referenced Southwest Airlines’  bid to peel back practices and reveal a more simplistic core.

    “It has one type of plane, one maintenance programme, one suite of spares, one training programme,” he said.

    “Anyone can work on any plane.”

    The vision for the industry should be to standardize the specifications for procurement, materials and packages that have “high-degree” of commonality, according to the BG leader.

    However, the mountain to climb towards simpler solutions isn’t insurmountable event at $30 oil, according to the pair.

    Brekelmans added: “Now it’s not all doom and gloom even with the price of oil where it is. In fact it’s this low oil price where we can find some hope.

    “It compels us to make our companies efficient, more competitive and in so doing so secure our places in the industry for decades to come.”

    Attached Files
    Back to Top

    Norway: ExxonMobil to shut down Jotun field

    ExxonMobil is reportedly planning to shut down production at the Jotun field offshore Norway by plugging 22 production wells, starting in April 2016.

    The Jotun field is located in the North Sea, 200 km west of Stavanger. Water depth at the site is 126 metres. The field was developed with two installations, a wellhead platform Jotun B and a production vessel Jotun A.

    According to, a Norwegian news website, the well plugging will be performed with a modular drilling rig mounted on Jotun B platform. It will start in April 2016 and will be completed during 2017. The news agency also reported that ExxonMobil plans to get rid of the field installations whereby the platform will be taken apart and the FPSO will be reused on another location.

    ExxonMobil is the operator of the field with 45% interest, while its partners Dana Petroleum, Det norske and Faroe Petroleum have 45%, 7% and 3%, respectively.

    The field started production in 1999 and was expected to finish in 2015. However, ExxonMobil estimated that Jotun would be able to produce until around 2021, and considered to prolong the use of the field’s installations. In June 2015, the operator of the field received consent from the Petroleum Safety Authority to use the facilities on the Jotun field beyond the originally plannedlifetime.

    The average production rate in 2014 was 2,100 oil equivalent barrels per day. According to the company, Jotun production has been on the decline over the last few years, thus resulting in spare production capacity. In order to utilize this capacity, the Balder field, also in the North Sea, has been connected to Jotun via a gas pipeline, while pipelines were installed between Ringhorne and Jotun thereafter, allowing parts of the Ringhorne field to produce to the Jotun FPSO, in addition to the Balder FPSO.
    Back to Top

    Anadarko cuts dividend 82 percent to survive cheap oil

    Oil and gas producer Anadarko Petroleum Corp slashed its quarterly dividend by 82 percent on Tuesday, preserving cash at a time when sliding oil prices have fueled losses.

    It was the latest response yet by industry executives to the more-than 70 percent drop in crude prices, which has forced oil producers and their suppliers into a radical rethinking of how best to deploy capital.

    The cut will save about $450 million annually, the company said.

    Rival ConocoPhillips said last Thursday it would cut its own dividend for the first time in 25 years, saying it needed to plan for oil prices to stay low "for a longer period of time."

    Anadarko said it would issue a first-quarter payout of 5 cents, down from 27 cents last quarter.

    Anadarko executives said last week they would ask the board of directors for some kind of reduction at its Monday meeting, noting that the company's stock price drop had boosted the dividend yield.

    Anadarko's shares are down more than 55 percent in the past year, pushing the yield close to 3 percent. That is higher than most members of the S&P 500 index.

    The dividend cut announcement did little to affect the share price. Shares of Anadarko were already down sharply and closed 7 percent lower at $37.24 a share. Crude oil prices fell sharply on the day, pulling down the entire energy sector.
    Back to Top

    Canadian energy companies sell

    Faced with record low prices for heavy crude, Canadian energy companies are sacrificing other parts of their business to keep higher-cost oil sands production going and safeguard the billions already invested in these multi-decade projects.

    Companies including Husky Energy Inc, MEG Energy Corp and Pengrowth Energy Corp are selling assets or slowing light and conventional oil exploration and production, even as they forge ahead with oil sands projects that are in many cases bleeding money on every barrel.

    Although the move to support higher-cost production seems counterintuitive, oil sands companies take a longer-term view that shutting plants in Alberta would be veryexpensive and risk permanently damaging carefully-engineered reservoirs, underground deposits of millions of barrels of tarry bitumen.

    It is easier, and cheaper, to shut down and later restart conventional wells.

    Producers are also betting that oil prices will eventually recover. The latest Reuters poll of oil analysts forecasts the U.S. benchmark will average $41 a barrel in 2016, a level where most Canadian oil sands projects can break even.

    Bankers say the need to bolster balance sheets and cover oil sands losses will boost the number of Canadian energy deals this year, particularly sales of pipelines, and storage and processing facilities.

    "The market was down significantly last year in terms of energy M&A, and we think that's going to reverse," said Grant Kernaghan, Canadian Investment Banking head for Citigroup.


    MEG is selling its 50 percent stake in the Access pipeline, which analysts value at around C$1.5 billion ($1.08 billion), while Husky is selling a package including 55,000 barrels of oil equivalent per day of oil and natural gas production, royalties and midstream facilities, valued at between C$2.4 billion to C$3.2 billion.

    According to a recent TD Securities report, virtually no oil sands projects can cover overall costs, including production, transportation, royalties, and sustaining capital, with U.S. benchmark crude below $30 a barrel.

    The benchmark heavy Canadian blend, Western Canada Select (WCS), now trades around $16.30 a barrel, just a few dollars above record lows hit in January.

    But as nearly 80 percent of oil sands costs are fixed investments, such as equipment for injecting high-pressure steam underground to liquefy tarry bitumen, producers prefer to have some revenue coming in to help offset those costs than none, said FirstEnergy Capital analyst Mike Dunn.

    To be sure, if WCS prices dropped even further to below $12 a barrel, Dunn said producers may look at ways to trim production by 10-30 percent.

    Oil sands "remains our core business so we will look to various other handles we have to support that business," said Brad Bellows, a spokesman for MEG.

    Even as it makes major cuts, Husky is ramping up new thermal projects, including its Sunrise joint venture with BP. Sunrise in northern Alberta took three years and C$2.5 billion to build and Husky is in the midst of the two-year process of raising reservoir pressure to full production capacity. Once there, Sunrise is expected to produce for 40 years.

    As well as selling assets, some players, such as Canadian Natural Resources Ltd and Baytex Energy are shutting in uneconomic conventional heavy oil wells, but leaving their oil sands operations intact.


    Bankers say that midstream assets - pipelines, storage and processing facilities - prove popular with buyers such as pension funds and private equity firms, which favor investments with stable cash flows that are relatively easy to value.

    "They're to a certain extent the jewels in the crown. These companies would not be looking to sell them if they could get away with not doing it," said Citi's Kernaghan.

    Last year, oil sands producer Cenovus Energy sold a portfolio of oil and gas royalty properties to Ontario Teachers' Pension Plan for C$3.3 billion.

    Industry veterans note oil sands operations also had to be "cross-subsidized" by healthier parts of the business during the last prolonged market slump in the 1980s and predicted producers would push to keep operating until prices recover.

    Attached Files
    Back to Top

    Halcón Provides Update on its Balance Sheet Initiatives

    Halcón Resources Corporation today provided an update on its balance sheet initiatives.

    As previously indicated, Halcón continues to proactively explore multiple options to strengthen its balance sheet. Over the course of 2015 the Company reduced its net debt by approximately $1 billion through various balance sheet restructuring efforts including debt for equity exchanges and discounted debt for debt exchanges.

    The Company has significant liquidity, a valuable hedge book, quality assets, and a vested management team that is working hard on behalf of the Company and all of its stakeholders. Halcón has no formal plan or strategy in place at this time but continues to review options with respect to further restructuring its balance sheet. The Company does not intend to comment on inaccurate media reports related to such efforts or the professionals it may engage to assist the Company in its evaluation and does not intend to make any further announcements concerning its review of alternatives unless and until it determines that additional disclosures are necessary or appropriate.
    Back to Top

    WPX Energy to sell Colorado assets for $910 mln

    Oil and gas producer WPX Energy Inc said it would sell natural gas assets in Colorodo's Piceance basin for $910 million to boost its liquidity amid a prolonged slump in oil prices.

    WPX said its unit, WPX Energy Rocky Mountain LLC, will be bought by Terra Energy Partners LLC, a private company owned by investment manger Kayne Anderson and private equity firm Warburg Pincus.

    WPX Energy Rocky Mountain holds assets that include about 200,000 net acres, with net production of about 500 million cubic feet equivalent per day.

    WPX Energy, which is focused on its operations in Texas's Permain basin, expects oil to comprise about half of its production volumes going forward, up from roughly 20 percent during 2015.

    Terra will also get more than $90 million of natural gas hedges and, in exchange, assume about $100 million of WPX Energy's transportation obligations.

    Terra has secured $800 million of equity commitment from existing investor Kayne and new investor Warburg Pincus, to fund the deal, which is expected to close in the second quarter.

    WPX Energy's stock closed at $4.52 on Tuesday, easing off a record low of $2.53 hit on Jan. 20.
    Back to Top

    Alternative Energy

    SolarCity posts profit as panel installations rise

    Residential solar panel installer SolarCity Corp reported a quarterly profit, compared with a loss a year earlier, driven by higher panel installations.

    SolarCity, which counts Tesla Motors Inc CEO Elon Musk among its investors, said net earnings attributable to its shareholders was $4.6 million, or 4 cents per share, in the fourth quarter ended Dec. 31, from a loss of $3.6 million, or 4 cents per share, a year earlier. (

    Revenue jumped 61 percent to $115.5 million.
    Back to Top


    Agrium's forecast disappoints

    Agrium Inc , a Canadian fertilizer and farm products retailer, joined rival Potash Corp of Saskatchewan Inc in forecasting a weaker-than-expected 2016 profit, as prices for crop nutrients remain weak.

    Agrium's Toronto-listed shares fell as much as 5.2 percent to C$110.89, its lowest in a year, as investors ignored a better-than-expected quarterly profit.

    The company, which sells seed, fertilizers and chemicals directly to farmers in North America, said it expects to earn $5.50-$7.00 per share in 2016, slightly below analysts' average estimate of $7.01, according to Thomson Reuters I/B/E/S.

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

    U.S. farmers are likely to increase total crop plantings in 2016, including 1 million to 3 million more acres of corn, a crop that is fertilizer-intensive, Agrium said on Tuesday. However, challenging macroeconomic conditions and weak crop prices pose risks for the year ahead, the company added.

    Rival Potash Corp last month forecast lower-than-expected profit for the year and slashed its dividend, due to tanking fertilizer prices.

    Agrium could be the only major fertilizer company to beat expectations for the fourth quarter, and the outlook shouldn't be surprising given recent commodity prices and Potash Corp's forecast, BMO analyst Joel Jackson wrote in a note.

    Agrium's fourth-quarter profit from continuing operations nearly tripled to $200 million, or $1.45 per share, helped by a multi-year cost-cutting program and rising production at its expanded Canadian potash mine.

    The producer of nitrogen, potash and phosphate fertilizers said its sales volumes rose in the fourth quarter ended Dec. 31, but weaker prices dragged down total sales.

    Sales fell 11 percent to $2.41 billion, missing analysts' estimate of $2.85 billion.

    Excluding items, profit was $1.52 per share, above analysts' average estimate of $1.38.
    Back to Top

    Precious Metals

    Lonmin CEO says will not shy away from merger or takeover

    Lonmin will not "shy away" from a merger or takeover but for now the company was focused on its plan to survive tough market conditions, its chief executive said on Tuesday.

    "We are continuously looking at options to maximise value for our shareholders and all other stakeholders. Should it be of benefit to our shareholders and stakeholders it's not something we would shy away from," CEO Ben Magara told Reuters in an interview at a mining conference in Cape Town.

    Magara said the company was for now focused turning cash positive in a low price environment - which involves closing high-cost shaft and cutting jobs.

    "That's what I am worrying about. The investors have given us money and we must deliver. Investors are asking if we are going to deliver on this," Magara said.

    Hurt by a prolonged 2014 strike, rising costs and a plunging platinum price, Lonmin raised $400 million through a cash call in December.

    "I have no doubt that there will be pressure on us when we finally start making money. Will we go and put it in a project first or will we pay investors?" Magara said.

    "I think it's important that investors will get their money back first. They deserve it."

    Lonmin has said it will continue to review its services and reduce costs, mainly through cutting jobs, as the slide in the price of its main commodity bites further.

    The price of platinum has fallen about 30 percent year-on-year, forcing miners to sell assets and cut production and jobs. Around two-thirds of the industry, whose mines were damaged by the five-month strike in 2014, are making losses.
    Back to Top

    Base Metals

    Mining tech firm Outotec misses profit forecast, shares fall 20 percent

    Finnish mining technology company Outotec missed fourth-quarter earnings forecasts and warned that demand from miners would weaken further this year, sending its shares down 20 percent on Tuesday.

    It also proposed no annual dividend for the first time in its history since it was spun off from Outokumpu in 2006.

    Nordic mining gear companies are struggling as miners cut spending due to low metal prices and uncertainty over growth in top metals consumer China. In November, Outotec announced plans to cut 650 jobs.

    Its fourth-quarter adjusted operating profit fell 31 percent from a year earlier to 17.6 million euros ($19.8 million), missing analysts' average estimate of 24.5 million in a Reuters poll.

    Outotec, which builds plants, makes equipment and offers services for the metal and mineral processing industries, said it expected demand for its equipment to further contract this year, while services demand was expected to weaken as miners delay modernization and maintenance due to weak metals prices.

    Benchmark copper, for instance, fell more than 25 percent last year.

    It forecast a 2016 core operating profit margin of 2-5 percent, compared with 4.7 percent in 2015 and an average forecast of 6.0 percent in a Reuters poll.

    "This reflects the rather poor visibility on the market. Uncertainty is great," CEO Pertti Korhonen said.

    Analysts said the outlook was poor given the company's cost-cutting programme, and that Outotec was not balancing weakness in gear sales with its services business as well as its Nordic peers Metso and Atlas Copco.

    "Their service business seems to be more dependent on larger modernization projects, which are discretionary for the customers. These orders will fluctuate a lot from quarter to quarter," Pekka Spolander, analyst at OP Equities, said.

    Shares in Outotec fell as much as 20 percent on Tuesday, and were down 18 percent at 2.93 euros at 1206 GMT. The shares have more than halved in the last six months. Shares of Danish rival FlSmidth, due to post results this week, fell 3.5 percent.

    Outotec's largest owner, Finnish state investment fund Solidium, increased its stake in January to 14.9 percent, according to the company's shareholder register. It owned 11.4 percent a year earlier.

    Solidium, which aims to strengthen its long-term ownership in companies seen as nationally important, declined to comment. It has previously backstopped rights issues in other troubled companies such as Talvivaara and Outokumpu .

    Attached Files
    Back to Top

    Aurubis confirms first-quarter earnings drop; stands by outlook

    Aurubis AG, Europe's biggest copper smelter, on Wednesday said first-quarter earnings fell, coming in below market expectations, after poor copper scrap availability and low precious metals output hit performance.

    However, Aurubis is still standing by its full-year earnings guidance from December. The company had made an advanced announcement of quarterly results on Jan. 27.

    Aurubis on Wednesday confirmed that its operating pretax profit (EBT) fell by 8 percent to 36 million euros ($40.64 million) for the quarter to the end of December 2015. Analysts had expected EBT of 56 million euros.

    Copper prices tumbled to their lowest in 6 1/2 years on Jan. 15, pressured by sliding oil prices and losses in Chinese equity markets.

    Low copper prices mean that dealers collect less of the scrap Aurubis buys to process into new metal and the fees the company earns to process scrap metal are generally lower.

    "For the entire year, we still view our earnings forecast from December as realistic: while Aurubis' earnings will be significantly lower than the record earnings of the previous year, they will still be satisfactory in fiscal year 2015/16," Aurubis executive board member Erwin Faust said in a statement.

    Full-year performance is expected to be supported by firm fees for treating copper concentrates, while product demand is also expected to be good in the company's main European markets, it said.

    "We anticipate good treatment and refining charges for Aurubis until the end of the fiscal year," Aurubis said.

    Copper ore treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal.

    Aurubis said in November that higher TC/RCs are expected in 2016 because of higher production by mines. When supplies of concentrates are large, ore owners have to offer higher fees to secure enough refining capacity.

    Support in the first quarter also came from the strength of the U.S. dollar, the currency in which treatment and refining charges and the premiums for newly produced copper cathodes are paid, it said.

    Aurubis said first-quarter cash flow was negative because a large amount of capital was tied up to build copper inventories ahead of the shutdown of its Pirdop smelter in Bulgaria from April to May. Those inventories will be reduced to a normal level after the shutdown and positively impact cash flows, it said.

    The copper scrap markets are expected to recover from the third quarter onwards, with a consequent recovery in refining fees for scrap metal, it said.
    Back to Top

    Indonesia mines ministry backs new Freeport copper export permit

    Indonesia's mining ministry on Tuesday recommended that Freeport McMoRan Inc receive a new six-month copper export permit, potentially ending a near two-week stoppage after the previous permit expired last month.

    Freeport was forced to halt overseas shipments from one of the world's biggest copper mines in Papua after the government demanded the U.S. mining giant first pay a $530 million deposit for a new smelter before a new export permit could be approved.

    A lengthy export stoppage would have hit Freeport's profits and denied the Indonesian government desperately needed revenue from one of its biggest taxpayers.

    "We issued a recommendation that Freeport receive an export permit," Bambang Gatot, the mining ministry's director general of coal and minerals, told reporters.

    The mining ministry recommendation will now be sent to the trade ministry, which has the power to issue export permits.

    Typically once the trade ministry receives a recommendation from the mining ministry, the renewal of an export permit would be a formality.

    Freeport Indonesia produces about 220,000 tonnes of copper ore from the mine per day. About a third usually goes to a domestic smelter at Gresik, with the rest exported as concentrate.

    Gatot told parliament the mining ministry supported the renewal of Freeport's export permit because of the miner's willingness to continue paying an export tax of 5 percent.

    Talks between the two sides over the $530 million bond were still ongoing.

    Indonesia wants the deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July 2015 to obtain its current export permit.

    Clementino Lamury, a director for Freeport Indonesia, told parliament the company already had a contract with vendors on constructing the smelter and would abide by the agreed payment terms, despite government demands for the investment to be accelerated.

    Freeport CEO Richard Adkerson last month said the government's demand for a smelter deposit was "inconsistent" with an agreement reached between the two sides in mid-2014.

    According to that agreement, Freeport must sell the government a greater share of the Grasberg mine, and invest in domestic processing to win an extension of its mining contract beyond 2021.

    The U.S. mining giant wants to invest $18 billion to expand its operations at Grasberg, but is seeking government assurances first that it will get a contract extension.

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

    Attached Files
    Back to Top

    Oz Minerals’ 2015 profit surges on record output

    Copper/gold miner Oz Minerals reported a 168% increase in its after-tax net profit for the year ended December 31, on the back of record copper production of 130 305 t. 

    After-tax net profit surged to A$130.2-million during the 2015 financial year, compared with A$30.3-million reported in the previous year. Revenue increased from A$831-million in 2014 to A$879.4-million, while operating cash flows doubled from A$208.3-million to A$429.8-million during the same period. 

    “Prominent Hill is proving itself to be a strong foundation asset,” said Oz Minerals MD and CEO Andrew Cole. “Production is at record levels and by maintaining a sharp focus on costs, we’ve managed to increase our annual profit by over 160% despite the drop in commodity prices.” Cole said that for Oz Minerals, 2015 had proven a year of transition where the company’s strategy helped to chart a clear course for significant operational and financial success. 

    “We still have lots to do, but I think we have a great asset in Prominent Hill that puts us in the enviable position to explore internal and external growth opportunities on the path to delivering shareholder value. “We’ve made a strong start to the year with the results of our gold trial and a decision to expand the underground at Prominent Hill by building a second decline. 

    With an announcement on Carrapateena due before the end of the month, we expect that the momentum will continue to build,” Cole said. Oz Minerals is spending about A$12-million to expand the underground capacity at Prominent Hill, linking the existing underground development with the openpit operation. The second decline is expected to increase underground capacity by about 30%, to between 3.5-million and 4-million tonnes a year. 

    Looking ahead, Cole expected 2016 to be another strong year in terms of production, with Oz Minerals increasing its copper production guidance from between 105 000 t and 115 000 t, to between 115 000 t and 125 000 t, while gold production has been increased from the previous estimate of between 100 000 oz and 110 000 oz, to between 125 000 oz and 135 000 oz.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP