Mark Latham Commodity Equity Intelligence Service

Friday 14th October 2016
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    Brazil court to try Lula on Angola corruption charges

    A federal judge in Brazil ruled on Thursday that former President Luiz Inacio Lula da Silva will stand trial for an alleged bribery scheme related to work by construction giant Odebrecht in Angola.

    It's the second time in less than a month that a federal judge has ruled that Lula, a two-term president who left office in 2011 as Brazil's most popular president with an 83-percent approval rating, must stand trial.

    Lula faces allegations of corruption, money laundering and obstruction of justice related to a sprawling kickback scheme at state-run oil company Petrobras, which prosecutors allege he orchestrated for more than a decade.

    Thursday's decision by Judge Vallisney Oliveira in Brasilia centers on allegations Lula and others took 30 million reais ($9.3 million) in bribes to help win low-interest financing from the BNDES development bank for Odebrecht projects in Angola. Lula's lawyers denied the accusations.

    Last month, Judge Sergio Moro ruled that Lula would stand trial on charges he was a "direct beneficiary" of 3.7 million reais in bribes from OAS SA, one of the engineering and construction firms at the center of the graft scandal.

    Separately, Moro decided on Thursday to try Eduardo Cunha, former speaker of the lower house of Congress, for his alleged role in the Petrobras corruption scandal.

    As speaker, Cunha led the successful drive to impeach former President Dilma Rousseff for breaking budgetary rules - a move Rousseff and her supporters call a "coup" in retaliation for her not trying to quash the aggressive Petrobras investigation.

    Rousseff, who served as the chairwoman of the Petrobras board for several years as the kickback scheme played out, is being investigated for obstruction of justice in the graft probe, but has not been charged with any crimes.
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    China Sept power use growth accelerates on year

    China's power use growth, a key barometer of economic activity, continued to accelerate in September due to more consumption by the service sector, an increasingly significant driver of the Chinese economy, official data showed on October 13.

    A total of 496.5 TWh of electricity was consumed in September, up 6.9% year on year, according to the National Development and Reform Commission (NDRC). The growth was in sharp contrast with a 0.1% drop in the same period of 2015 and extended year-on-year increases seen since July.

    September's power use, however, was down 11.83% on the month, mainly a result of falling air-conditioning demand as the hot weather days faded away gradually.

    Electricity consumed by the service sector expanded rapidly in September, with information, computing and software industries surging 17.1% year on year, the NDRC official Zhao Chenxin said during a press conference.

    Power use by commerce, hospitality and catering industries grew 14.5%, while financial and real estate industries as well as business and residential services rose 15.5%.

    In the first three quarters of the year, the service sector accounted for 66.7% of power use growth, well above the 31.3% for the industrial sector.

    China has been re-balancing its economic structure from manufacturing and investment to services and consumption.

    The service sector grew 7.5% in the first half of the year, accounting for 54.1% of the overall economy, up 1.8 percentage points from a year earlier, official figures show.

    In the first three quarters, the agricultural, industrial and service sectors all used more electricity, with year-on-year growth at 4.8%, 2.0% and 11.5%, respectively, according to the NDRC. Residential power consumption also went up rapidly by 11.6% from the year-ago level.

    During the same period, the nation's total power use grew 4.5% year on year to 4,388.5 TWh, compared with a 0.8% rise a year earlier, Zhao said.

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    U.S. weather forecaster now sees La Nina likely in the coming months

     A U.S. government forecaster on Thursday said the chance has increased for weather phenomenon La Nina developing in the coming months in the Northern Hemisphere fall and persist into winter 2016-17.

    The Climate Prediction Center (CPC), an agency of the National Weather Service, in a monthly forecast pegged the chance of La Nina developing this fall at 70 percent, versus a likelihood of neutral conditions forecast last month.

    The conditions are slightly favored to persist into the winter, CPC said, pegging the chances at 55 percent. The emergence of La Nina would follow a strong El Nino that has dissipated in recent months after wreaking havoc on global crops.

    Typically less damaging than El Nino, La Nina is characterized by unusually cold ocean temperatures in the equatorial Pacific Ocean and tends to occur unpredictably every two to seven years. Severe occurrences have been linked to floods and droughts.
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    ChemChina, Sinochem in talks on possible $100 billion merger: sources

    Chinese state-owned chemical companies Sinochem Group and ChemChina are in discussions about a possible merger to create a chemicals, fertilizer and oil giant with almost $100 billion annual revenue, three sources familiar with the matter said.

    The deal has been proposed by China's central government as part of its efforts to slash the number of state-owned companies and create larger, more competitive global industry players, said the sources.

    The sources asked not to be identified because they were not authorized to speak publicly about the matter.

    Top management of the two firms held a meeting earlier this week to discuss a potential merger, said one source directly briefed on the matter.

    "The government has given the mandate to let Sinochem lead in this potential merger with ChemChina," said the source.

    A second source familiar with the matter said both firms have started due diligence work looking into each other's financial details and business segments.

    When asked about a potential merger, a ChemChina spokesperson said: "There is no such thing."

    A Sinochem spokesperson said he was not aware of the discussions. China's State-owned Assets Supervision and Administration Commission (SASAC), which oversees state-owned enterprises, did not comment when asked about the talks.

    While still at an early stage, the talks come as China National Chemicals Corp, as ChemChina is officially known, finalizes a $43 billion takeover of Swiss pesticides and seed group Syngenta. That deal would be China's largest-ever foreign investment.

    Beijing may have initiated the talks to create a stronger, larger player to make it easier to absorb a world-class company like Syngenta, said the source directly briefed on the matter.

    If approved, the ChemChina-Sinochem merger would be among the largest between two Chinese state-owned enterprises, following similar marriages that created shipping giant China Cosco Shipping Corp, train maker CNR-CSR and more recently, the tie-up between Baosteel Group and Wuhan Steel.

    Combining the two companies, which make everything from refined oil products to latex gloves and insecticides, would propel it into the top echelons of the competitive global chemicals, fertilizer and oil industries.

    Based on 2015 annual reports, revenues of the combined group would comfortably eclipse Germany's BASF, the world's largest maker of industrial chemicals by sales.

    The second source said a deal would benefit both companies: Sinochem's upstream oil and gas assets could feed ChemChina's nine refineries, Sinochem's access to rubber trading would help ChemChina's tire business, while Sinochem's dominance in fertilizer markets would be a good fit for ChemChina's agri-chemical business.

    "Sinochem is generally light on assets, while ChemChina is a more of a manufacturer," he said.
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    Oil and Gas

    Dollar curbs, tough marketing crimp Iran oil deals - traders

    Nine months after sanctions on Iran were lifted, some of the world's biggest traders have yet to strike major oil deals with the OPEC member, stymied by Tehran's tough stance on marketing its crude and restrictions on dollar trades.

    Top executives from Vitol, Glencore, Trafigura and Gunvor told the Reuters Commodities Summit this week that while they are keen for a slice of the business, hurdles remain.

    "It's still very difficult," Ian Taylor, chief executive of commodity trading house Vitol, said.

    He cited the lack of a usable dollar system to conduct transactions with the country, making transfers of the U.S. currency troublesome and hindering trading.

    Taylor said that while Vitol had started to do some business with Iran, the competition was strong. "Everybody is looking at it as well."

    Most Western sanctions against Iran were lifted on Jan. 17, but remaining U.S. restrictions stipulate that only non-U.S. banks can do dollar trades with Iran provided these do not pass via financial institutions in the United States.

    Iran has already signed a raft of deals with international firms, some of which are dollar-based. But to date big banks have steered away from doing business involving the country, out of worries over inadvertently running afoul of U.S. authorities.

    Concerns about the dollar were echoed by Gunvor Group Chief Executive Torbjorn Tornqvist and Trafigura Chief Financial Officer Christophe Salmon.

    Limits on where crude can be sold remains a sticking point as it reduces a trader's ability to maximise profit margins, particularly in an oversupplied market.

    "We shouldn't also forget that the Iranians ... when it comes to crude oil, are extremely skilful in their marketing," Tornqvist said.

    "They need to know where it (crude) goes and to whom. And we see very little change: 'this is what we did before sanctions and this is what we'll continue to do after the sanctions'."

    Iran, like Saudi Arabia, sets different monthly prices for each region and has traditionally dealt only with majors or pure refiners where supplying their own refineries remains the core business.


    Trade houses have been largely confined to Iran's refined products market although Trafigura loaded a large cargo with Iranian crude in late June.

    "Iran is a very promising country for many companies including ourselves. But so far what we have done since the sanctions were lifted, it's really small," Salmon said.

    Trafigura loaded the Olympic Target tanker with 2 million barrels of Iranian Heavy crude in a bid to capture market share among China's independent refiners.

    But the so-called teapot refineries were slow to buy the oil once it arrived in China. After arriving in the area around mid-July, it took the tanker a month and a half to start offloading, Reuters ship tracking data showed.

    Global head of oil at Glencore, Alex Beard, said his firm had already had substantial dialogue with Iran, including "conversations with NIOC about prefinance and continue to talk to find the right terms and conditions for both sides".
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    Oil Production Starts At Giant Kashagan Field

    Commercial-scale production at Kazakhstan’s giant Kashagan field in the Caspian Sea has started at a daily rate of 90,000 barrels, the country’s Energy Minister Qanat Bozumbaev said. The field is operated by a consortium including Exxon, Shell, Eni, Total, CNPC, and Japan’s Inpex, along with Kazakh state oil company Kazmunaygaz.

    Kashagan, the biggest oil discovery in Kazakhstan in about four decades, holds an estimated 38 billion barrels of crude and a trillion cubic meters of natural gas. Of the oil reserves, 10 billion barrels are recoverable.

    The field was first put into operation three years ago, but just a month later production was suspended because of a gas leak. An inspection revealed the whole 200-km stretch of pipelines set to transport oil and gas from Kashagan needed to be replaced because of micro-cracks, the result of high-sulfur associated gas running through them.

    Kazakhstan is the largest oil producer in Central Asia and ranks 18th in the world, with annual production of 1.72 million barrels per day as of two years ago. This year, however, according to OPEC, production is set for a decline to 1.56 million bpd, from the 2015 daily average of 1.6 million barrels.

    The revision comes after in August, Kazakhstan pumped around 1.27 million bpd, down 300,000 bpd from July on the back of scheduled maintenance at the TengizChevroil field, also in the Caspian.

    Again according to OPEC, production at Kashagan should reach 370,000 bpd by June next year, and the country’s overall growth in oil production should average 220,000 bpd through the end of 2017.

    Kazakhstan is not a member of OPEC, and as such is not taking part in the number-one news item in global energy these days: the freeze agreement that OPEC is discussing with Russia. It’s not as big of a producer as Russia is, but if output at Kashagan rises as OPEC expects, this will be an increase in global production that trumps the 160,000-bpd OPEC rise in August that curbed the upward movement in international oil benchmarks caused by the news about the freeze.

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    India has received a consignment of 2 million barrels of oil from Iran for storage.

    India says it has received a consignment of 2 million barrels of oil from Iran and that the volume has been used to partly fill half of the capacity of a strategic storage in the country’s south.

    The consignment was imported by Mangalore Refinery and Petrochemicals Ltd (MRPL) through a very large crude carrier (VLCC).

    A second consignment is to be procured by Bharat Petroleum Corp and is scheduled to arrive around October 25, the New Delhi-based Business Standard newspaper reported quoting sources with direct knowledge on the matter.

    India will fill half of the storage with 6 million barrels of Iranian oil, the report added. New Delhi is engaged in talked with United Arab Emirates and Saudi Arabia for meeting the remaining demand, the daily added.

    India, which is seeking to hedge against energy security risks as it imports about 80 percent of its oil needs, is building emergency storage in vast underground caverns at three locations in southern India to hold a total of 36.87 million barrels of crude, enough to cover almost two weeks of demand, the Business Standard added.

    Other reports showed that India imported about 552,200 barrels per day (bpd) of oil from Iran in September.  The figure, Reuters reported, was down by 4.1 percent compared to August when imports from Tehran hit their highest in at least 15 years.

    India's average Iranian oil imports in April-September, the first six months of India's financial year, rose nearly four-fifths to about 468,000 bpd.  Reuters said in a report that Iran’s share in India’s overall purchases during the period had jumped to 11 percent.
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    Emerging winter demand propels Asian LPG prices to 10-month high

    Asian LPG prices shot to a 10-month high of $379.50/mt late Thursday, waking up from a protracted slumber, as robust appetite from China to stockpile for winter and a high-priced deal by oil kingpin Saudi Aramco this week set the stage for firmer prices, market sources said Friday.

    "There is strong demand since winter is coming," said a source with a Chinese company.

    The price was last higher on January 4, the first trading day of the year, at $385/mt, data from S&P Global Platts showed.

    Chinese buyers such as Ouhua Energy, Star Gas, Oriental Energy and Tianjin Bohai have bought end October to early November arrival cargoes of propane and butane since late September.

    Exact price details were sketchy but traders said some clips were done at Far East Index plus $1-$3/mt on a delivered basis.

    Tianjin Bohai earlier this week bought an early November-arrival cargo from Turkish trader Bayegan.

    The cargo was heard to be an evenly-split 44,000 mt parcel. Price details were not available.

    The physical CFR Singapore-Japan propane price climbed $3.50/mt day on day Thursday -- bucking a $1.07/b ($8.56/mt) slump in the crude complex -- to be assessed at $379.50/mt.

    The front month contango structure in Far East Index swaps has largely flattened out, while the CP swap structure has flipped into backwardation.

    The November/December Far East Index swap flattened out from a $3/mt contango Wednesday to parity Thursday, while the November/December CP swap flipped to a $1/mt backwardation from a $1/mt contango over the same period.

    The front month structure weakened slightly Friday morning, with November/December FEI swaps at minus 50 cents/mt and November/December CP swaps at plus 50 cents/mt

    Further forward, December/January FEI and CP spreads were both pegged at plus $3/mt Friday morning.

    "Demand is coming from China," said a Singapore-based trader.

    Japanese buyers, on the other hand, remained on the sidelines as stock levels were still healthy and deemed largely sufficient to tide over winter.


    The other factor that gave the market an uplift was news of a deal by Saudi Aramco, heard done Wednesday, at a strong level.

    Saudi Aramco was heard to have sold a 44,000 mt cargo comprising 11,000 mt of propane and 33,000 mt of butane for early November loading at $376/mt for propane and $406/mt for butane.

    The buyer was said to be either Kolmar or trading company SHV Energy. SHV specializes in LPG downstream marketing.

    "The Saudi sale price seems high, but the market is moving up," said the Singapore-based trader.

    Saudi Aramco's fixed price deal is equivalent to a $5-$10/mt premium to the November CP, a source said.

    Premiums in the Middle East for FOB AG cargoes have climbed since September; Qatar's Tasweeq early last month sold an October-loading cargo at parity to the CP.

    The recovery in LPG market sentiment is a departure from the sluggish mood that has dominated over the past two to three months, when the market was awash with supply from a flood of US exports due to the shale oil revolution, sources said.
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    Chevron eyes Gorgon condensate sales this month

    US supermajor Chevron could this month start selling condensate produced at the its Gorgon liquefied natural gas plant in Australia, trade sources said on Thursday.

    Chevron could market a 600,000 to 650,000-barrel cargo for loading in December, they said, although the company is still finalising some details.

    The California-based oil giant did not immediately respond to requests for comment from Reuters.

    It started operations at the Gorgon field in March, but was forced to shut briefly in July due to unexpected technical problems.

    The introduction of the new condensate comes at a time when demand for the light oil is rising as two new splitters in South Korea and Qatar have started trial runs.

    Gorgon condensate has an API gravity of about 52.9 degrees and a sulphur content of 0.0088%, the two sources said, declining to be identified as they were not authorised to speak with media.

    Splitters process condensate to obtain mainly naphtha for petrochemical production.
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    Rosneft head says confident privatisation to happen by year end

    Igor Sechin, the chief executive of Russia's top oil producer Rosneft, said on Thursday he was confident the sale of a minority stake in the company would happen by the end of this year.
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    Israel, Turkey discuss joint gas pipeline as ties resume after six-year rupture

    Israel and Turkey have discussed the possibility of building a natural gas pipeline between the two countries, Israel's energy minister said on Thursday, in the first Israeli ministerial visit to Turkey since ties were ruptured six years ago.

    Israeli Energy Minister Yuval Steinitz agreed at a meeting in Istanbul with his Turkish counterpart Berat Albayrak to "establish immediately a dialogue between our two governments" to examine the project's feasibility, he told reporters.

    "We discussed energy in general and particularly the issue of natural gas and the possibility of building a natural gas pipeline from Israel to Turkey in order to deliver natural gas to Turkey and to Europe," Steinitz said.

    Relations between the two countries crumbled after Israeli marines stormed an aid ship in May 2010 to enforce a naval blockade of the Hamas-run Gaza Strip, killing 10 Turkish activists on board. Israel and Turkey announced in June that they would normalize ties.
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    Polish firms concede defeat in search for shale gas riches

    Poland's drive to exploit shale gas has come to an end with state-run gas firm PGNiG and oil refiner PKN Orlen drawing a line under projects to find it.

    The country's quest to explore for shale gas began five years ago, when the then prime minister Donald Tusk raised hopes with a forecast of it coming on stream in 2014.

    This attracted global energy majors, including Chevron Corp, Exxon Mobil and Total, but one by one they pulled back after disappointing results and a slump in oil prices.

    Polish state-run firms, including PGNiG and PKN Orlen were the last ones to work on the country's shale gas projects.

    "The discussion and projects related to shale gas is a closed issue for us," Miroslaw Kochalski, deputy head of PKN Orlen told a news conference on Wednesday.

    This was echoed by Piotr Wozniak, the chief executive office at PGNiG, who said:

    "Shale gas has ended not that badly when it comes to the improved techniques of unconventional gas exploration. Shale gas as such has failed indeed."
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    Small fall in Us oil production

                                                                            Last week   Week before  Last year

    Domestic Production '000................... 8,450             8,467            9,096
    Alaska ................................................ 481                462                490
    Lower 48 ......................................... 7,969             8,005            8,606
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    Summary of Weekly Petroleum Data for the Week Ending October 7, 2016

    U.S. crude oil refinery inputs averaged about 15.6 million barrels per day during the week ending October 7, 2016, 480,000 barrels per day less than the previous week’s average. Refineries operated at 85.5% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.9 million barrels per day. Distillate fuel production decreased last week, averaging 4.5 million barrels per day.

    U.S. crude oil imports averaged about 7.9 million barrels per day last week, up by 151,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.9 million barrels per day, 8.9% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 762,000 barrels per day. Distillate fuel imports averaged 95,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 million barrels from the previous week. At 474.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.9 million barrels last week, but are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.7 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 5.1 million barrels last week.

    Total products supplied over the last four-week period averaged 20.0 million barrels per day, up by 2.4% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.3 million barrels per day, up by 2.3% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, down by 3.5% from the same period last year. Jet fuel product supplied is up 9.1% compared to the same four-week period last year.

    Cushing down 1.4 mln bbls

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    Cushing draw continues

    Genscape 10/13 data shows largest wkly #crude inventory draw @ #Cushing in 7 yrs as of WE 10/11.

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    North Dakota Is Pumping Oil at the Slowest Pace in Two Years

    North Dakota oil production dropped below one million barrels a day in August for the first time in more than two years as depressed prices forced explorers to cut back.

    Production from the state’s portion of the Williston Basin fell to 981,000 barrels a day, the lowest since March 2014, according to a report by the North Dakota Pipeline Authority. The state’s crude output has shrunk from a peak of more than 1.23 million barrels a day in December of that year.

    "It does send a signal to the world markets that U.S. producers are serious about reducing activity, reducing costs, reducing production and I think that should help support the recent price increase we saw," Lynn Helms, director of state’s Department of Mineral Resources, said in a call with reporters.

    The collapse in oil prices from above $100 a barrel in 2014 prompted producers to curtail drilling in unprofitable areas. U.S. shale production could fall to about 4.4 million barrels a day in October, the EIA forecast last month. Lower output and last month’s OPEC decision to limit supply has helped oil rally above $50 a barrel this month from a 12-year low of about $26 in February.

    Horizontal fracking of tight rocks in North Dakota’s Bakken region contributed to a renaissance in U.S. oil production this decade that turned the country into the world’s second-biggest oil producer for a time. North Dakota was the second-biggest oil-producing state in the U.S. in July, trailing only Texas, Energy Information Administration data show.

    North Dakota’s output should “bottom out” at 900,000 barrels a day by the middle of next year, Helms said. At least two North Dakota operators restricted production in August, contributing to the drop, Helms said. North Dakota’s rig count stands at 33, after falling to 22 in May, Baker Hughes Inc. data show.

    "North Dakota is hit harder than other places, but it’s not as if we’re falling off the cliff in terms of production," U.S. Energy Secretary Ernest Moniz said on Bloomberg TV.
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    RSP Permian to buy Silver Hill Energy Partners for about $2.4 billion

    Oil producer RSP Permian Inc (RSPP.N) said it would buy oil and gas company Silver Hill Energy Partners for about $2.4 billion to expand its assets in the Permian Basin in Texas.

    RSP Permian is the latest company to bulk up in the Permian Basin, widely seen as the cheapest place to develop onshore fields in the United States.

    Thursday's deal adds to more than $12 billion in transactions this year in the Permian Basin.

    RSP Permian, with a majority of its acreage located in the core of the Midland Basin within the Permian Basin, said Silver Hill was based in the oil-weighted area of the Delaware Basin.

    Reuters reported in August that Silver Hill was up for sale.

    RSP Permian said on Thursday that it would pay $1.25 billion in cash and 31 million in shares for Silver Hill, owned by private equity firms Kayne Anderson Capital Advisors LP and Ridgemont Equity Partners.

    RSP also said the purchase would be funded by an offering of 20 million shares.

    Silver Hill Energy Partners comprises two entities, Silver Hill Energy Partners LLC and Silver Hill E&P II LLC. Their current net production is 15,000 barrels of oil equivalent per day (boe/d).

    The deal for Silver Hill Energy Partners LLC is expected to close in November and the other entity in March.

    RSP also increased its average daily production forecast in 2016 to 28,500-29,500 boe/d from 26,500-28,500 boe/d, largely attributing this to its existing wells' performance.

    The short period of the newly acquired production would not meaningfully impact the forecast, the company said.

    RBC Capital Markets is the lead M&A adviser to RSP and Barclays Capital the co-adviser. Vinson & Elkins L.L.P. served as legal counsel to RSP.

    Jefferies LLC advised Silver Hill while Thompson & Knight LLP and DLA Piper LLP served as legal counsel.

    RSP's shares were down 4.8 percent at $39.73 in extended trading.
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    Marathon’s Billion Dollar Bet on the Utica Shale

    Marathon Petroleum, which purchased midstream company MarkWest Energy last year, continues to grow and expand–because of the Utica Shale. 

    Marathon operates a refinery in Canton, OH that processes crude oil. Question: Did you know that 25% of the crude oil being processed at the Marathon refinery comes from the Utica Shale? 

    No, we didn’t know that either! Marathon has made some big bets on the Utica. In fact, over the past two years, they’ve bet more than $1 billion on the Utica…
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    EIA Winter Fuels Outlook

    For the purposes of this outlook, EIA considers the winter season to run from October through March. The average household winter heating fuel expenditures discussed in this supplement are a broad guide to changes compared with recent winters. Fuel expenditures for individual households are highly dependent on the size and energy efficiency of individual homes and their heating equipment, along with thermostat settings, local weather conditions, and market size (seeWinter Fuels Outlook table).

    Temperatures this winter, based on the most recent forecast of heating degree days (from the National Oceanic and Atmospheric Administration (NOAA), are expected to be much colder than last winter east of the Rocky Mountains, with the Northeast and Midwest 17% colder and the South 18% colder. Despite the expectation of colder temperatures compared with last winter, temperatures in the eastern United States are expected to be about 3% warmer than the average of the five winters preceding last winter, as temperatures last winter were much warmer than normal in those areas. In the West, temperatures are forecast to be about 2% warmer than last winter. However, recent winters provide a reminder that weather can be unpredictable. In addition to the base case, the Winter Fuels Outlook includes forecasts for scenarios where heating degree days in all regions may be 10% higher (colder) or 10% lower (warmer) than forecast.

    Full report:

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    Extraction soars in IPO

    Shares of Extraction Oil & Gas - the first producer to launch a US IPO this year - rose as much as 19.7% in their market debut as crude prices held above $50 per barrel.
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    Alternative Energy

    EU Parliament committee backs carbon market reform compromise

    The European Parliament's industry committee voted on Thursday to back a compromise for reforming the European Union's carbon market, favoring a Commission proposal on the speed for removing permits from the market.

    The committee voted 45 to 13 for a package of measures aimed at tightening the amount of carbon permits overall as part of the EU's policy of implementing a landmark global climate deal, the Paris Agreement.

    The EU's Emissions Trading System (ETS) is designed to make big polluters in Europe, such as power companies and industry, pay for their emissions. However, a surplus of carbon credits following the economic crisis has weakened prices.

    The report will feed into debates in the European Parliament's environment committee, which is tasked with the bulk of the reform.

    The industry committee backed a proposal for a 2.2 percent annual rate for removing carbon permits from the market from 2020 to 2030.

    This was criticized by environmental groups for not being tough enough to help meet EU emissions targets.

    Lawmakers stuck with the EU executive's proposal for allocating permits to industry perceived to be at risk of relocating abroad to avoid the burden of climate taxes.

    Under the Commission's proposal, energy-intensive industries would be divided into two categories, with sectors considered "at risk" receiving allowances covering 100 percent up to a benchmark value based on the cleanest plants, and the rest 30 percent.

    That would meet a key demand of a group of 15 European energy-intensive industry associations, which had called for the rejection of an alternative proposal for a tiered approach, which would add more categories of allocations of free permits to industries.

    The cement lobby welcomed the deal as balanced.

    Lawmakers also proposed not to hand out free permits to sectors not seen as at risk of relocating - a move viewed as bullish for the market, analysts for Thomson Reuters Point Carbon said.

    However, they approved allocating up to 5 percent more free allocations to industry affected by a trigger mechanism known as the correction factor that cuts permits across all sectors if the total meted out by nations exceeds EU law. These would be taken from the share of permits to be auctioned.

    The committee also agreed to cancel 300 million allowances from the Market Stability Reserve (MSR), which soaks up surplus permits, and called for a higher threshold of 50,000 tonnes for small emitters to opt out of the system.

    Lawmaker Ian Duncan, who is shepherding the changes through the European Parliament, described the overall report as a sensible compromise.

    "The real test now is not to get through the committees, it’s to get through the plenary," he said at Carbon Pulse's Carbon Forward conference in London.

    Parliament's Environment Committee is scheduled to vote on the reforms in December while a plenary vote is due early next year, probably in February.

    The benchmark EU carbon price was trading at 5.56 euros a tonne, after earlier rising to a session high of 5.68 euros.

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    EDF CEO says hopes more nuclear reactors will return online by year-end

    The chief executive of French utility EDF said on Thursday he hoped more offline nuclear reactors could return to production before the end of the year, following reports that France could face tight supplies this winter.

    "We are working to make sure reactors that are on outage resume production," EDF CEO Jean-Bernard Levy told reporters.

    "We are still carrying out demonstrations with ASN and we hope that some of these reactors will resume production by the end of the year," he said.

    Power prices have spiked sharply higher in recent weeks on fears of supply shortages.
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    Precious Metals

    Silver miner Hochschild raises full-year production forecast

    Precious metals miner Hochschild Mining Plc raised its full-year production forecast for a second time this year on Thursday, citing better-than-expected performance at its Inmaculada and Arcata mines in Peru.

    ** The company, which has mining operations in Peru, Chile and Argentina, said it expected full-year production to be 35 million silver equivalent ounces.

    ** The company had earlier expected to produce 32 million ounces this year.

    ** Hochschild also reported a 17.8 percent rise in its silver production at 5.9 million ounces in the third quarter ended Sept. 30.
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    Gold Standard Intersects 97.3m of 3.16g Au/t at the North Dark Star Gold Deposit

    Key North Dark Star Highlights

    DS16-24 intersected 97.3m of 3.16 g Au/t approximately 65m down-dip to the west from 126.2m of 3.95 g Au/t intersected in DS16-08 (see August 9, 2016 news release). The dip of the mineralization appears to be flattening to the west, rather than steepening, a positive development. Mineralization occurs within the host package of decalcified, variably silicified, and collapse brecciated debris flow conglomerate, the same part of the conglomerate section that hosts gold in core holes DS16-08, DS16-03B, DS16-21 and DS15-13.

    The intercept in DS16-24 is split into two contiguous zones: an upper, pervasively oxidized zone, with limonite and hematite; and, a lower reduced zone with sooty pyrite, carbon, weak limonite and hematite on fractures. The transition from oxide to reduced zones with increasing depth in Carlin-style gold systems is a well-documented and expected pattern. The two higher grade intervals of 10.1m of 4.02 g Au/t and 49.1m of 4.62 g Au/t are indicative of a robust gold system.

    Approximately 120 meters south of DS16-24 and -08, the oxide intercept of 39.0m of 0.72 g Au/t in DS16-27 represents the down-dip continuation of 101.2m of 1.50g Au/t mineralization intersected in DS16-03B (see August 18, 2016 news release). Separation between the DS16-27 and DS16-03B mineralized intercepts is approximately 60 m and mineralization appears again to be flattening to the west. Mineralization in DS16-27 occurs in decalcified, weak to moderately silicified, oxidized and collapse brecciated debris flow conglomerate, bioclastic limestone, calcarenite, and silty limestone.

    The north-striking Ridgeline fault has emerged as an important control on mineralization with the gold system focused in the eastern, hanging wall side of the fault. A new and evolving interpretation suggests that the North Dark Star gold zone occurs in a syncline within the hanging wall of the Ridgeline fault. Faults and folds are well-documented controls on mineralization within Carlin-style gold systems of northern Nevada.

    DS16-23, a core hole located approximately 80m east and up-dip of DS16-03B, returned anomalous gold values from altered and oxidized debris flow conglomerate. Initial interpretations suggest DS16-23 may be east of mineral-controlling structures.

    Attached Files
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    Base Metals

    Chile regulator draws up charges against Antofagasta's Los Pelambres mine

    Chile's environmental regulator on Thursday drew up various charges against the Los Pelambres copper mine for mismanaging water resources and nearby flora, charges which could lead to stiff fines or even closure.

    "In all, nine charges have been brought for detected non-compliance relating to its RCA (environmental permit)," the regulatory body SMA said in a statement.

    Of the nine alleged violations at Los Pelambres, controlled by Antofagasta Minerals, five were considered serious and four minor, according to the SMA.

    The infractions included the extraction of water from unauthorised locations, the construction of unauthorised wells and the failure to reforest some zones as required by law.

    Antofagasta could not be immediately reached for comment.

    Los Pelambres has ten days to present a compliance plan to the SMA or 15 days to present a defence. The punishment for the alleged infractions could be a fine of $23.8-million or the temporary or indefinite closure of the mine, the SMA said.

    In 2013, the SMA initiated a separate regulatory proceeding against Los Pelambres for mismanaging archaeological sites.

    Los Pelambres, located in Chile's north-central Coquimbo region, produced 375 800 t of copper in 2015
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    Kamoa-Kakula Project said to be largest copper discovery ever in Africa

    Kamoa-Kakula Project now demonstrated to be the largest copper
    discovery ever made on the African continent

    Kamoa-Kakula ranks among the world’s 10 largest copper deposits – and stands as the world’s largest, high-grade copper deposit – following a new Mineral Resource estimate

    Kakula – the second major discovery at Kamoa – contains Indicated Mineral Resources estimated at 66 million tonnes  at 6.59% copper plus Inferred Resources of 27 million tonnes  at 5.26% copper, at a 3% cut-off

    Kakula also contains Indicated Mineral Resources estimated  at 192 million tonnes at 3.45% copper plus Inferred Resources  of 101 million tonnes at 2.74% copper, at a 1% cut-off

    Kakula’s addition boosts the combined Kamoa-Kakula  Indicated Mineral Resources to 944 million tonnes  at 2.83% copper plus Inferred Resources of 286 million tonnes  at 2.31% copper, at a 1% cut-off
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    Philippines minister says wants to ban new mines as clampdown deepens

    Philippines Environment and Natural Resources (DENR) Secretary Regina Lopez answers a question during a news conference at the department's headquarters in Quezon city, metro Manila, Philippines August 11, 2016. REUTERS/Romeo Ranoco

    The Philippines' environment minister on Friday said she wanted to ban new mines, ramping up a campaign to clamp down on damage from the minerals industry in the Southeast Asian nation.

    The Philippines is the world's top nickel ore supplier and an environmental crackdown that has halted a quarter of its 41 mines, and the risk that 20 more maybe shuttered has spurred a rally in global nickel prices.

    "I want to put a moratorium on any new mine," Regina Lopez told a media briefing on Friday.

    "I don't want to fight the mining companies, I can work with them as long as they don't silt the river, destroy the rice fields."

    Lopez, a committed environmentalist, also said her agency would review around 800 environmental compliance certificates (ECC) including those granted to mines. That would come on top of a mining industry audit completed in August that led to the current mine suspensions.

    Lopez on Friday said that not all the 20 mines recommended for suspension would be halted, confirming an earlier Reuters report.

    Nickel prices surged to a one-year high of $11,030 a tonne in August, although the metal has since retreated, trading at $10,425 on Friday.

    Lopez also announced the suspension of the ECC of a nickel mine in southern Davao Oriental province run by private-owned Austral-Asia Link Mining Corp.

    Lopez told Reuters on Monday that the environmental permit would be canceled because it sits between Mount Hamiguitan, a UNESCO World Heritage Site, and Pujada Bay, a marine protected area.

    "We're now going to have an intense evaluation of all other ECCs. No more mining in any protected areas," she said.

    Attached Files
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    Steel, Iron Ore and Coal

    Coking coal spot price triples to $231/mt FOB Australia on severe shortage

    Coking coal spot price triples to $231/mt FOB Australia on severe shortage

    Coking coal prices continued its upward trend Thursday, tripling in value to $231/mt FOB Australia from $76.45/mt at the beginning of the year. This is based on the S&P Global Platts Premium Low Vol benchmark assessment.

    Spot prices have climbed $12.50/mt since the beginning of the week on the back of high liquidity.

    At least eight trades were reported done or close to being concluded this week. End-user demand, coupled with trader interest fueled the trades.

    In terms of a geographical breakdown, the trades were mostly Asia-centric though with some participation from Europe.

    Concerns over supply of prime hard coals after two force majeure declarations by Anglo American and South 32 in the last two months, coupled with perennial Chinese coal shortages led to the price rally, sources said.

    PLV spot price has now exceeded the Q4 contract price settlement in northeast Asia by $31/mt. The settlement was done at $200/mt FOB Australia last Friday. The soaring met coal prices have also affected steelmakers' production costs, which was previously dominated by the price of iron ore.

    Met coal now accounts for 60% of a steel mill's production costs compared with 42% in 2015, according to Platts cost composition model.

    Trades in the paper market, however, suggested a backwardated structure.

    Paper trades on the Chicago Mercantile Exchange on Platts PLV FOB Australia were at $182/mt FOB Australia Thursday for Q1 2017.
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    At last, residual mining right returned to Kumba Iron Ore’s Sishen

    A long-running legal dispute, which arose in 2010, came to a head on Thursday whenSouth Africa’s Department of Mineral Resources(DMR) returned the residual 21.4% undivided share of the mining right for the Sishen mine toKumba Iron Ore subsidiary, Sishen Iron Ore Company (SIOC).

    The 21.4% share, initially held by steelmaking companyArcelorMittal South Africa (AMSA), has been the subject of a head-scratching dispute, which arose six years ago when the DMR controversially granted the right to politically connected company Imperial Crown Trading (ICT).

    Now SIOC has the mining right back, following the completion of an internal appeal process, as prescribed by Section 96 of the Minerals and Petroleum ResourcesDevelopment Act (MPRDA).

    Prior to the MPRDA coming into effect, SIOC and AMSA both held undivided shares of a mining right in the properties on which Sishen's mine was located.

    In terms of the latest development, SIOC is the sole and exclusive 100% holder of the right to mine iron-ore and quartzite at the Sishen mine.

    New Kumba CEO Themba Mkhwanazi expressed appreciation to the DMR for bringing the matter to a successful conclusion.

    However, the consent is subject to various conditions.

    Kumba said in a release to Creamer Media’s Mining Weekly Online that these include the continuation of the exportparity price agreement between SIOC and AMSA in its role as a strategic South African steel producer, as well as SIOC’s continued support of skills development, research and development and initiatives to enable preferential procurement.

    Mkhwanazi made the point that Kumba, an Anglo American subsidiary, remains fully committed to contributing towardsSouth Africa’s developmental objectives against the background of Anglo last year announcing its intention to dispose of its controlling interest in Kumba and to exit the Northern Cape iron-ore business.
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    China's Sept steel exports down 22pct on year

    China exported 8.8 million tonnes of steel products in September, falling 21.78% on year and down 2.33% on month, the lowest in the past three months, showed the latest data from the General Administration of Customs (GAC).

    Total exports of steel products rose 2.4% on year to 85.12 million tonnes over January-September, data showed.

    China's steel makers preferred to sell steel products to domestic buyers than export amid a robust domestic market.  

    Meanwhile, China imported 1.13 million tonnes of steel products in September, climbing 11.88% on year and up 1.8% from August; imports over January-September stood at 9.83 million tonnes, gaining 1.03% from the year prior.

    China imported 92.99 million tonnes of iron ore in September, 7.98% higher than last year and up 6.01% from August. Over January-September, iron ore imports reached 762.55 million tonnes, rising 9.13% year on year.

    Attached Files
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